News Column

Fitch Affirms Reaseguradora Patria's International and National IFS Ratings

June 17, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed Reaseguradora Patria S.A.'s (Patria) International Insurer Financial Strength rating (IFS) at 'A-' and its National Scale IFS rating at 'AAA(mex)'. The Rating Outlook is Stable.

KEY RATING DRIVERS

Patria's ratings are based on balance sheet quality, operating performance and other key quantitative strengths. Fitch positively views the company's qualitative factors such as corporate governance and management, and its wide product and market focus. The current rating is constrained by the challenges of its small size for a reinsurer that competes with global peers as well as above average exposure to variable income investments.

Patria's average operating leverage level is low at 1.0x in 2009-2013. This is driven by the stringent Mexican insurance regulation, conservative dividend policy and risk-based capital approach. Patria's risk management model is advanced and has proven effective in monitoring and mitigating the company's exposures.

Patria has been able to maintain below-average loss ratios over the years, aided by its underwriting policies and pricing techniques, its limited participation in high-frequency business lines (auto/health), good internal claims control and its conservative retrocession protection. In 2013, Patria's net loss ratio was 44.8% and combined ratio was 87.8%, comparing favorably with 46.8% and 91.2% on average for the 2009-2012 period, respectively.

The company's net financial income was affected in 2013 by the negative trend in the market value of its investment portfolio, which resulted in a 94% decrease in net financial income. This was mainly driven by the company's position in government bonds (56% of total portfolio), which generated net losses of MXP 5.7 million (USD 0.4 million).

Patria's premium distribution is moderately concentrated by client. In 2013, Patria lost one of its main ceding companies due to its acquisition by another insurance group which caused overall premiums to decrease. The largest 10 clients represent 31% of total premiums.

Patria is not dependent on retrocession, but buys this protection opportunistically when the market is attractive. The company's geographically diversified business and its conservative underwriting and reserves policies, allow the company to maintain high retention levels. The company's catastrophic reserves cover 30.4x the priority under its catastrophic retrocession contract.

RATING SENSITIVITIES

Patria's rating have limited upside potential in the short term given its small size relative to global reinsurers that drive the overall market.

Negative rating actions may be triggered by an increase in operating leverage above 1.5x and recurrent high operating catastrophic and financial losses that undermine Patria's profitability and equity base. Negative movements on Mexico's sovereign rating may trigger a review of Patria's rating given its high exposure to government securities.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology - Global Master Criteria', Nov. 13, 2013;

--'Global Reinsurers' 2013 Financial Results', April 22, 2014;

--'Reinsurance (Global) - Sector Credit Factors', Aug. 14, 2013;

--'Mexican Insurers: 2013 Financial Ratios', March 21, 2014;

--'Mexico Sovereign' May 8, 2014.

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723072

Global Reinsurers' 2013 Financial Results

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=746640

Reinsurance (Global) Sector Credit Factors

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715686

Mexican Insurers: 2013 Financial Ratios (Adequate Technical Profitability, but Challenged by Regulatory Changes)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=741216

Mexico

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=747949

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=835073

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Franklin Santarelli

Managing Director

Fitch Ratings, Inc.

+1 212-908-0739

33 Whitehall St.

New York, NY 10004

or

Secondary Analyst

Eduardo Recinos

Senior Director

+503-2516-6606

San Salvador, El Salvador

or

Committee Chairperson

Julie Burke, CPA, CFA

Managing Director

+1-312-368-3158

or

Media Relations

Elizabeth Fogerty, +1-212-908-0526

elizabeth.fogerty@fitchratings.com


Source: Fitch Ratings


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