AM Best Revises Outlooks to Stable for Abarca - Companhia de Seguros S.A.

AMSTERDAM--(BUSINESS WIRE)--AM Best has revised the outlooks to stable from negative and affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” (Good) of Abarca - Companhia de Seguros S.A. (Abarca) (Portugal).

The Credit Ratings (ratings) reflect Abarca’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and marginal enterprise risk management.

The revision of the outlooks to stable follows management actions taken during 2021 to reduce gross and net underwriting limits and tighten reinsurance purchasing practices. These management actions have alleviated pressure on Abarca’s balance sheet strength assessment.

The balance sheet strength assessment of strong reflects the company’s strongest risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), and conservative and liquid investment portfolio. Offsetting factors include Abarca’s high dependence on reinsurance and uncertainty surrounding the sufficiency of loss reserves given a relatively short loss history. In addition, the company’s small capital base exacerbates the sensitivity of its solvency position to stressed scenarios and variations in future performance.

The adequate operating performance assessment is based on AM Best’s expectation of Abarca’s good prospective earnings generation. In 2019, Abarca generated a net profit of EUR 1.0 million, which partially benefited from the release of unexpired risk reserves built up during its first years of operation. The company reported a net profit of EUR 430k in 2020 and is expected to report a net profit of EUR 404k in 2021. Since its inception in 2016, the company also has built up its equalisation reserves, for which AM Best gives credit as part of available capital.

Abarca’s limited business profile assessment reflects its position as a small monoline insurer, focusing entirely on surety insurance in Spain and Portugal. The company has a small albeit growing market profile in Spain, where it generates most of its revenue, and a leading position in the smaller Portuguese market. The company distributes its products through brokers, direct to policyholders and, since 2021, through bancassurance agreements.

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