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FOR IMMEDIATE RELEASE
MEXICO CITY - JANUARY 31, 2020 11:50 AM (EST)
AM Best has affirmed the Financial Strength Rating (FSR) of B++ (Good) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “bbb+” of AVLA Seguros de Crédito y Garantía S.A. (AVLA) (Chile). The outlook of these Credit Ratings (ratings) remains stable.
The ratings reflect AVLA’s balance sheet strength, which AM Best categorizes as strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
AVLA began operations in Chile in 2013 as AVALCHILE, before changing its name to AVLA in 2016. The company is majority owned by Inversiones AVLA Seguros S.A., which holds a 90.27% stake, with the remaining 9.73% held by the group’s ultimate parent, AVLA S.A. The company specializes in financial guarantees, credit insurance and surety, and it ranks No. 1 in Chile in surety and financial guarantees and No. 2 in credit insurance.
AVLA’s business profile is considered neutral. Since its creation in 2013, AVLA has successfully become one of the main participants in Chile’s market for credit insurance and financial guarantees, but current development of its niche market still leaves room for implementation risk. In AM Best’s view, this is mitigated partially by successful implementation to date of its business plan, despite 2019 growth targets being limited by the social unrest in the country.
AM Best views he operating performance of the company as adequate. In 2019, AVLA was able to create efficiencies within its group to distribute its products better and to manage potential adverse credit conditions due to protests in the country during the second half of 2019. As of September 2019, the company’s combined ratio was 97%, an improvement to that reported in 2018.
AVLA’s balance sheet assessment is strong given its solid capital base for the risks it undertakes, as reflected in its very strong risk-adjusted capitalization. However, financial leverage at its holding company level limits AM Best’s view of balance sheet strength to strong, given the relevance of the company to its parent in terms of revenues and profits. The strong assessment also recognizes the willingness and proven history of capital contributions made by its shareholders to support AVLA’s growth, the latest one taking place in 2019, which was equivalent to 11% of its reported surplus at year-end 2018.
The stable outlooks recognize the capabilities of the company to maintain a business model that can post profitable results amid social unrest in Chile. The outlooks also recognize the willingness of its shareholders to continue to support the company’s growth with capital contributions. In July 2019, Landsberg Investment S.L, owned by Germany-based DEG-Deutsche Investitions-Und Entwicklungsgessellschaft Mbh and Colombia-based Altra Investments II GP, Inc. acquired 38% of AVLA S.A. providing additional capital to support the growth of the company and to improve processes and governance.
Positive rating actions could take place if AVLA is able to further strengthen its capital base, supported by stable operating performance, as reflected in premium sufficiency through stable administrative and claim expenses. Negative rating actions could take place if administrative expenses or claims experience affects the company’s profitability. Additionally, if risk-adjusted capitalization falls to levels that no longer support its current ratings, either from excessive growth without further capital contributions or from significant losses that affect the capital position of the company, negative rating actions could take place.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of AM Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology .
Key insurance criteria reports utilized:
View a general description of the policies and procedures used to determine credit ratings. For information on the meaning of ratings, structure, voting and the committee process for determining the ratings and monitoring activities, please refer to Guide to Best’s Credit Ratings.
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