MEXICO CITY--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb” (Good) of Mercantil Seguros y Reaseguros, S.A. (Mercantil Seguros) (Panama). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Mercantil Seguros’ balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.
Mercantil Seguros’ balance sheet strength is underpinned by its risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), which is at the strongest level. The ratings also reflect the company’s well-structured reinsurance program, sound underwriting practices and conservative investment strategy. Partially offsetting these positive rating factors is Mercantil Seguros’ relatively small size within Panama´s insurance industry.
Mercantil Seguros is a Panama-based (re)insurer established in 2013, with gross premiums written composed of health (77%), and auto (12%), miscellaneous (11%), as of year-end 2020. The company, which is part of Mercantil Group’s international companies and controlled by the ultimate parent, Mercantil Servicios Financieros Internacional, S.A., operates in Panama through a network of brokers and direct distribution channels. Mercantil Seguros also performs as a retrocessionaire for reinsurance business sourced in Venezuela, driven by reinsurance brokers.
Mercantil Seguros’ risk-adjusted capitalization stands at the strongest level and is supportive of its current ratings. The company has increased capital at a 29% compound annual growth rate since it began operation, supported by positive bottom-line results driven by a consistent inflow of underwriting and investment income. A well-balanced reinsurance program placed among counterparties of strong credit quality also reinforces the company’s risk-adjusted capitalization.
In AM Best’s view, Mercantil Seguros has shown sound underwriting practices, characterized by overall premium sufficiency levels. A combined ratio of 81% in 2020 was enabled through well-underwritten risks by group companies, despite an increase in claims expenses triggered by the pandemic. Additionally, consistent reinsurance profits, which offset acquisition costs, continue to support the company´s profitability, as evidenced by a return on equity and return on assets of 15.9% and 10.0%, respectively, in 2020.
AM Best expects the company’s current geographic diversification to further improve through distribution channel synergies provided by the overall organization in the near to midterm, enabling Mercantil Seguros to expand its Panama-sourced business while diminishing dependence on its Venezuela-sourced business.
Factors that could result in positive rating action include improvements in the company’s business profile coupled with sustained profitability, while maintaining risk-adjusted capitalization at the strongest level. Factors that could lead to negative rating action include protracted adverse underwriting performance that leads to a significant deterioration in its risk-adjusted capitalization, or political turmoil that affects Venezuela-sourced business.
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