AM Best Affirms Credit Ratings of Ocaso, S.A. Seguros y Reaseguros

LONDON--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a+” (Excellent) of Ocaso, S.A. Seguros y Reaseguros (Ocaso) (Spain). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect Ocaso’s balance sheet strength, which AM Best assesses as strongest, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.

Ocaso’s balance sheet strength assessment is underpinned by risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). The balance sheet strength assessment benefits from low dependence on reinsurance, excellent liquidity and absence of financial leverage. A partially offsetting factor is the deficiency of the legacy pre-1999 “decesos” (i.e., funeral expense insurance) reserves, following regulatory changes that occurred in 2015. The reserves continue to be strengthened annually, and the deficiency will reduce incrementally until 2033. This is a year before the original regulatory reserving schedule of 2034, with the company benefitting from the recent change in the Spanish mortality tables, which has reduced the total reserve deficiency.

Ocaso has a track record of strong operating performance, supported by very stable and profitable underwriting performance, demonstrated by a five-year (2016-2020) weighted average combined ratio of 83.5%. Profitability of the life business continues to be affected adversely by reserve strengthening of the run-off book of business that contains policies with high guarantees. The COVID-19 pandemic has affected the technical performance of the decesos book modestly, given the associated increase in mortality rates. Despite this, the technical result has remained resilient and AM Best expects Ocaso’s operating performance to remain strong over the medium term.

Ocaso has a well-established competitive position in Spain, where it benefits from a recognised brand and a broad distribution network. The company has a defensible profile in its domestic market as a leading insurer of decesos, in which it has a stable customer base. Approximately 97% of Ocaso’s underwriting revenue was sourced from Spain in 2020. Although this high concentration to the domestic market is a potential source of earnings volatility, Ocaso has demonstrated its ability to produce resilient results, even during periods of recession and most recently, a pandemic.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

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