MEXICO CITY--(BUSINESS WIRE)--
AM Best has affirmed the Financial Strength Rating of A (Excellent), the Long-Term Issuer Credit Rating (Long-Term ICR) of “a” and the Mexico National Scale Rating of “aaa.MX” of Reaseguradora Patria, S.A. (Patria Re) (Mexico). AM Best also has affirmed the Long-Term ICR of “bbb” of Patria Re’s ultimate parent, Peña Verde, S.A.B. (Peña Verde) (Mexico). The outlook of these Credit Ratings (ratings) is stable. Per AM Best’s criteria procedure on insurance holding companies, Peña Verde’s Long-Term ICR rating reflects a standard notching from Patria Re’s Long-Term ICR and is in line with companies of the same rating level.
The ratings reflect Patria Re’s balance sheet strength, which AM Best categorizes as strongest, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
Patria Re’s balance sheet strength assessment of strongest is supported by the same assessment on its risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), low underwriting leverage, robust reinsurance program, as well as the company’s strong liquidity metrics. The ratings also reflect its comprehensive ERM infrastructure and expansive knowledge of its core markets in Latin America, which is reflected in the company’s smooth implementation of its expansion strategy with a stable overseas operation outside its niche market.
Partially offsetting these strengths is Patria Re’s 2018 negative net income, impacted by the negative valuation of investments despite improvements in underwriting quality. Concerns still exist related to the important role of equities in its investment portfolio and some catastrophe-prone lines of business, which could create volatility in the company’s operating performance.
Patria Re has established a solid niche position in Mexico and Latin America, which allows it to accept profitable business selectively while maintaining a diversified product portfolio tailored to specific markets. This strategy has resulted in consistently favorable underwriting results over the years and has contributed to Patria Re’s enhanced risk-adjusted capitalization. A well-balanced reinsurance program placed among counterparties with a strong security level also reinforces the company’s risk-adjusted capitalization. Furthermore, the company’s underwriting leverage has remained at conservative levels for the past five years.
As of June 2019, the company registered a positive bottom line result, mainly driven by improved investment results. The company’s efforts to maintain stable claims and management expenses, coupled with strong underwriting practices, will remain key to maintain a profitable profile.
During 2018, Patria Re reported a portfolio deficit due to the valuation of stocks as volatility in the markets affected some of its equities. While the company has maintained such positions historically and kept a long-term investment horizon for these assets, a more prudent approach has taken place due to current uncertain economic atmosphere.
AM Best considers Patria Re to be well-positioned at its current rating level. Factors that could lead to positive rating actions include continued strong underwriting and overall results in conjunction with maintaining the strongest risk-adjusted capitalization, improvements in the performance of its investment portfolio, as well as continued and successful operation of its overseas expansion. Factors that may lead to negative rating actions include a sustained decline in underwriting profitability, significant deterioration in risk-adjusted capitalization and unsuccessful execution of the company’s overseas expansion plans.
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