|[August 28, 2014]
Fitch Affirms Rimac's (Peru) IFS Rating at 'BBB'; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings has affirmed Rimac Seguros y Reaseguros S.A.'s (Rimac)
Insurer Financial Strength (IFS) ratings at 'BBB'.
The Rating Outlook is Stable.
KEY RATING DRIVERS
Rimac's rating reflects the company's leading position in Peru's
insurance market, well diversified business mix, which also includes
health care management business, with adequate profitability and cash
flow ability, despite Peru's intense competition. Its ratings are
limited by their narrow geographical scope compared to global players
and its increased leverage level, which compares above the median of
similarly-rated companies; although those may start to come back to its
normal levels in the short and medium term.
Rimac's gross written premiums keep growing similar to industry trends
allowing the insurer to preserve their leadership in the local market.
Competition remains fierce in the highly concentrated insurance market
in Peru. Rimac's leading position is also shared by its subsidiary
dedicated to provide protection and services on the health care market;
which enhance the overall competitive position and product offer of
Rimac. Rimac's market share remains on stable, reached 33.8% of total
insurance premiums as of March 2104 and Rimac EPS (health care
subsidiary) has reached 45.1% share on its respective business line.
Despite being neutral to Rimac's ratings, Fitch view positively the
relation of the bank with its controlling shareholder: the Brescia
group, which manages diverse interests along the Peruvian economic
activity and the second largest commercial bank in the country; which
expand synergies and cross selling opportunities.
Rimac's profitability remains relative volatile compared to its peers
due the fierce market competition and some temporary spikes on its claim
ratio due the expansion in some markets and the soft prices environment.
During 2013, the insurer was able to revert the negative trend on its
profitability underpinned by a stronger combined ratio and enhanced
prices. Rimac's annualized return-on-average assets ratio reached 2.3%
and return-on-average equity reaching 15%, which favorably compared with
2013 fiscal year end ratios (1.9% and 11.1% respectively). Combined and
operative ratios also performed well during the first quarter of 2014,
reaching 104.3% and 91.7% respectively. Fitch believes that the
favorable trend of profitability and operating performance will continue
at least for the short term, however, price cycles remains a threat in
Rimac's asset under management stock (derived from its strong footprint
on the annuities and provisional business) continues growing strong and
is consistently aligned to the reserves constitution trend, mainly
driven by previsional segment. As of March 2014, the financial
investment portfolio reached PEN5,508 million, representing 65.3% of
total assets and 90.4% of technical eserves. The company's investment
portfolio is considered adequate in terms of its average credit quality,
tenors and currency aligned with the profile of its technical reserves,
managing an adequate assets/liability management. Rimac follows a
conservative investment approach, mainly concentrated in fixed income
securities mostly between the 'BBB/A' range, with limited exposures to
complex and/or variable income securities.
Reinsurance coverage remains solid and stable, limiting entity risks and
equity exposure including a reputable international reinsurer's pool and
limited counterparty risk, mostly rated above 'BBB-'. Reinsurance
protection incorporating proportional quota share and non-proportional
XL and Catastrophic policies, which are defined by each business line
requirement, with higher cession levels for the non-life insurance
lines. Fitch considers adequate Rimac's maximum equity exposure to a
Rimac's leverage position was temporarily affected in 2013 due
unrealized losses on its investment portfolio and the current cash
dividend policy; both issues resulted in a 9% reduction on Rimac's
equity base as of end 2013. As of March 2014 this situation has
persisted, reaching an adjusted liabilities-to-equity ratio of 5.4x,
slightly above the 5.2x ratio reached as of December 2013, but above
2009-2012 average-leverage ratio of 3.8x. Fitch base case scenario calls
for a reduction on such ratio due improved earnings, expecting that the
adjusted leverage ratio will come down below 4x during 2014. It's worth
mentioning that current leverage ratios are not affected by increasing
financial debt, which is not existent, but rather by the increase on the
assets under management from the annuities and provisional business.
The current Stable Outlook is driven by Fitch expectations about Rimac's
financial performance, which will continue to improve in the next
quarters, taking up historic average operating ratios below 90% and
return on average equity in the 15% range; which will help to reduce its
net leverage ratio below 4x.
Key rating triggers that may lead to an upgrade include: a sustained
improvement of its main performance ratios, especially an operating
ratio consistently below 85%; while its leverage ratio falls below 3.0x.
Key rating triggers that may lead to a downgrade include: deterioration
on its profitability and operating performance, reaching a
return-to-average assets ratio below 1% and/or an operating ratio above
95%, a recurrent leverage ratio beyond 5x or a deterioration in the
credit risk profile of its investment portfolio.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Nov. 13, 2013).
Applicable Criteria and Related Research:
Insurance Rating Methodology
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