AM Best has assigned a Financial Strength Rating of B+ (Good) and a Long-Term Issuer Credit Rating of "bbb-" to Seguros Universales, S.A. (Universales) (Guatemala). The outlook assigned to these Credit Ratings (ratings) is stable.
The ratings reflect Universales’ balance sheet strength, which AM Best categorizes as very strong, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The stable outlooks reflect AM Best’s expectation that the company will maintain a stable capital base on the back of positive bottom line results in conjunction with an evolving ERM framework.
Universales, which was established in 1962, is the fifth-largest insurer in Guatemala, with a market share of 8%. Its portfolio is composed mainly of non-life products (84%), as of December 2019, with the remainder (16%) directed to life insurance market. The company holds very competitive positions in the property/casualty (P/C) and accident and health segments, ranked fourth and fifth, respectively. The company is owned privately by a group of 10 shareholders, none with a stake larger than 23%.
AM Best views Universales’ business profile as neutral, based on the company’s market position and its ability to develop niche markets through commercial alliances, distribution channels and development of new offerings. AM Best’s stable market segment outlook on Guatemala’s insurance industry recognizes that growth prospects have become limited due to the effects of the COVID-19 pandemic, but that macroeconomic fundamentals provide stability to the system to mitigate the potential impact on claims and financial investments derived from the crisis. In addition, the company’s digitalization efforts have navigated the current economic cycle successfully, making way for further administrative efficiencies.
AM Best assesses Universales’ balance sheet strength as very strong, due to the availability and quality of the capital, reinsurance protection and conservative risk profile. The company’s constant profitable results have reflected in a growing capital base that despite being subject to dividend payments have proven sufficient to face the conservative risk profile of the company’s asset base. The company has set a reinsurance program based on a mixture of treaty and facultative programs with highly rated reinsurers, which historically have been effective in protecting the company’s balance sheet.
AM Best considers Universales’ operating performance as marginal due to its dependency in other technical income and investment results to post positive bottom line results, as its combined ratio has been consistently above 100. P/C lines underwriting has improved recently, but the life segment is limited by high acquisition expenses directly associated with its strategy, aligned with the company’s expected performance. In August 2020, Universales’ net result benefited from lower claim frequency even with lower premium volume due to the COVID-19 pandemic. AM Best acknowledges that 2020 will be a difficult year for business, albeit muted in terms of expected claims, and will continue to monitor events that could harm claim costs given the company’s exposure to catastrophe events.
Positive rating actions could take place if there is a stabilization of Universales’ operating performance in terms of bottom line results or if its risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), improves in a constant and steady way in the medium term. Negative rating actions could take place if the company’s capital base deteriorates as a consequence of an unsuccessful strategy affecting results and risks undertakings.
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