AM Best Affirms Credit Ratings of Reunion Re Compañia de Reaseguros S.A.

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 Reunion Re Compañia de Reaseguros S.A. (Reunion Re) (Argentina). The outlook of these Credit Ratings (ratings) is negative.

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

The negative outlooks of Reunion Re reflect pressure on its balance sheet driven by a challenging macroeconomic environment in Argentina and volatility in reinsurance recoverables, which have started to reflect gradual signs of improvement.

Reunion Re’s balance sheet strength is underpinned by its risk-adjusted capitalization being at the strongest level, as measured by Best´s Capital Adequacy Ratio (BCAR). The ratings also reflect the company’s consistent profitability despite a volatile economic environment. Other positive rating factors include a well-structured and diversified reinsurance program, the company’s seasoned management team and synergies provided by its main shareholder. Partially offsetting these positive rating factors is the historic volatility in Reunion Re’s bottom line results derived from operating in an economy with high inflation and currency volatility, exposure to capital controls, public debt restructuring and uncertainty from the COVID-19 global pandemic.

Reunion Re initiated operations in Buenos Aires, Argentina in 2012, and ranks among the country’s top reinsurance companies in terms of premium market share. The company operates through a network of brokers and direct distribution channels in Argentina, Paraguay, Guatemala, Bolivia, Ecuador, Honduras and El Salvador.

Reunion Re’s risk-adjusted capitalization stood at the strongest strong level in 2021 and is supportive of its ratings. Historically, the company has increased capital at a 53% compound annual growth rate supported by positive bottom-line results, driven by a consistent inflow of underwriting and investment income, which reflects the management team’s market knowledge and well-rounded experience in Argentina. A well-balanced reinsurance program placed among counterparties with a strong credit level also reinforces the company’s risk-adjusted capitalization and diminishes its credit risk exposure. In AM Best´s view, current capital levels could become pressured if the credit quality of Reunion Re´s investment portfolio deteriorates further given the prevailing macroeconomic uncertainty in Argentina. In addition, spikes in the volume of reinsurance recoverables have also pressured the company’s capital adequacy, which supports its current ratings.

In AM Best’s view, the reinsurer has shown disciplined underwriting in a highly volatile market that is driven by inflation and foreign exchange rate pressures. Reunion Re has managed to maintain overall profitability despite the negative effects derived from historic non-recurring adjustments in premium reporting, capital controls and public debt restructuring. By year-end 2021, the company sustained a return on equity of 9.3%, driven by contained underwriting expenses in conjunction with inflation adjustments. Negative investment results support the company’s highly dollarized investment strategy and asset liability management profile, reflecting as well its evolving ERM capabilities.

Factors that could lead to negative rating actions include a deterioration of its risk-adjusted capitalization to a level that no longer supports the ratings in light of current macroeconomic risks, which could pressure AM Best’s view of Reunion Re’s balance sheet strength level. Additionally, negative ratings actions could result if the company’s ERM framework fails to monitor the capital position adequately and results in a drop to a level that is not supportive of the current rating.

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 Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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