OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has commented that the Long-Term Issuer Credit Rating (Long-Term ICR) of “bb+” (Fair) of Austral Participações S.A. (Austral), as well as the Financial Strength Rating of B++ (Good) and the Long-Term ICR of “bbb+” (Good) of Austral Resseguradora S.A. (Austral Re) and Austral Seguradora S.A,, all with positive outlooks, remain unchanged following the announced acquisition of Markel Participações Ltda. and Markel Resseguradora do Brasil S.A. The transaction is expected to close on or about May 31, 2021. All companies are domiciled in Brazil.
On May 27, 2021, Austral announced that it is acquiring the run-off operations of Markel Resseguradora do Brasil, and its parent company Markel Participações (together Markel Brasil). Markel Brasil recorded BRL 11.1 million in earned premiums in 2020, with shareholders’ equity of BRL 91.4 million at the end of 2020. Markel Brasil operations are 100% ceded to Markel UK via a quota share agreement. The acquisition will be paid with a five-year bank loan, which translates into a pro-forma consolidated leverage of 9.8% debt to tangible capital at the end of 2020 for the group after the acquisition. The resulting pro-forma interest coverage ratio is 6.3x at the end of 2020.
AM Best sees the transaction as accretive to Austral’s balance sheet strength, which AM Best assesses as very strong. Austral’s adequate operating performance, neutral business profile and appropriate enterprise risk management are not expected to be impacted by the transaction, due to the quota share agreement at 100% premium cession. The positive outlooks continue to derive from AM Best’s expectation that Austral’s balance sheet strength will remain at the very strong level, supported by strong internal capital generation, the recent reduction of its catastrophe exposures and expected improvement in operating performance after the transaction.
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