MEXICO CITY--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of Aseguradora Ancón, S.A. (Ancón) (Panama). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Ancón’s balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, favorable business profile and appropriate enterprise risk management.
Ancón's balance sheet strength is underpinned by risk-adjusted capitalization at an assessed level of very strong, supported by a well-structured reinsurance program that covers the company’s different business lines and sound underwriting practices. Offsetting these positive rating factors is the slow dynamism of Panama’s insurance market in recent years and the strong competition Ancón faces in its main segments.
Ancón is the seventh-largest insurer in Panama, with a market share of 3.1% as of June 2020. Property/casualty insurance products comprise 63.2% of its business portfolio, with the remaining 36.8% made up of life products, including accident and health. The company’s main segments are auto and health, representing 43.4% and 30%, respectively, of its gross premiums written. The company has two subsidiaries in Puerto Rico: Multinational Insurance Company (Multinational), a property/casualty insurer, and Multinational Life Insurance Company (Multinational Life), a life insurance company.
Ancón’s risk-adjusted capitalization follows a positive trend, as measured by Best’s Capital Adequacy Ratio (BCAR). This trend has been driven by consistent profitability, the result of a prudent business strategy in terms of retention and growth, a comprehensive reinsurance program set with highly rated reinsurers and, finally, a shareholder commitment as reflected by a recent USD 9 million capital contribution from its holding company, Ancon Investment Corporation. This contribution stemmed from the holding company issuing a series of preferred shares in 3Q 2020. The result of capital contribution enhanced Ancón's risk-adjusted capitalization level to strongest as of the end of 3Q 2020. In AM Best’s view, this parental support has provided Ancón with an optimized capital structure through a reduced level of financial leverage. Over the mid to long term, should Ancón be able to maintain this enhanced capital base without any deterioration, and along with a prudent dividend payout plan, AM Best anticipates that the company will be able to achieve a balance sheet strength assessment classification of strongest as well.
In 2018, improvements in auto underwriting, in conjunction with Ancón’s decision to optimize its catastrophic reinsurance coverage, allowed the company to maintain a combined ratio below 100% and consistent profitability. AM Best expects Ancón’s 2019 underwriting performance, partially undermined by deviations in public transportation claims, to take advantage of pricing adjustments, de-selection of unprofitable business , underwriting inspectors and current quarantine measures, in order to help it maintain a contained development in auto claims. These efforts should support a steady underwriting performance and profitability above a 2.2% return-on-equity ratio in the years to come. As of September 2020, Ancón has reported a combined ratio of 85.8%, well below the 101% combined ratio recorded at year-end 2019.
Positive movement in Ancón’s ratings or outlooks could take place if the company continues to implement its strategy in a profitable manner with continued support from its strong reinsurance program that will enable Ancón to consistently maintain risk-adjusted capitalization at a very strong level. Negative rating actions could occur if the company’s operating results show a negative trend of sustained losses that affect its capitalization or business profile.
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