MEXICO CITY--(BUSINESS WIRE)--AM Best has upgraded the Financial Strength Rating to A (Excellent) from A- (Excellent) and the Long-Term Issuer Credit Rating to “a” (Excellent) from “a-” (Excellent) of Instituto Nacional de Seguros (INS) (San Jose, Costa Rica). The outlook of these Credit Ratings (ratings) has been revised to stable from positive.
The ratings reflect INS’ balance sheet strength, which AM Best assesses as strongest, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.
The rating upgrades reflect the company’s consistently favorable operating earnings trends, as well as the company’s successful adaptation to the environment in which it operates.
INS’ assessed risk-adjusted capitalization level remains at strongest, as measured by Best’s Capital Adequacy Ratio (BCAR), and is supported by a comprehensive and adequate reinsurance program, solid operating performance and its position as the leading insurer in Costa Rica. The assessment of INS’ business profile considers the characteristics of Costa Rica’s market, derived from the country’s Insurance Law of 2008, and includes INS’ robust market share and the guarantee provided by Costa Rica’s government to support INS’ domestic obligations.
INS is Costa Rica’s largest insurer with a market share of 70%, as of December 2020. The company has exclusivity on underwriting compulsory workers’ compensation and mandatory auto insurance. INS’ compulsory premium segment represents 34% of its business portfolio and 24% of the industry’s total premiums written.
In 2020, Costa Rica’s market, with INS representing the majority of it, was affected by a slowdown, reflecting the economic contraction caused by the effects of the coronavirus pandemic as well as an adverse fiscal situation. Nevertheless, INS’ underwriting performance improved in comparison with 2019, with the company posting a lower combined ratio of 87% from 93%, consolidating a positive trend for the last three periods. The company has not relaxed its underwriting standards from the adjustments implemented in previous years, like the abandonment of poor-performing products in auto, personal property and group life.
Investment income, based on a conservative investment portfolio, has also been stable and strong during the last five years, contributing to a positive bottom-line result of USD 122.6 million at year-end 2020, providing a solid growth for its capital base, despite the compulsory 25% dividend paid to the government.
AM Best expects INS to continue improving and consolidating its business by implementing its geographical diversification strategy progressively, which should offset increased competition in the voluntary segments. The company is in a good position to maintain its strongest risk-adjusted capitalization, as measured by BCAR, due to its good profitability, appropriate ERM practices and adequate reinsurance with highly rated international reinsurers, which provides a buffer for variations in claim severity and catastrophic events.
Positive rating movements are not expected in the medium term. Negative rating actions could occur if technical results deteriorate or if there is a reduction in net income, given any kind of loss that significantly affects the company's profitability or risk-adjusted capitalization to levels that are no longer supportive of the current ratings.
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