CONTACTS:
FOR IMMEDIATE RELEASE
OLDWICK, N.J. - JULY 29, 2011 12:00 AM (EDT)
A.M. Best Co. has downgraded the financial strength rating (FSR) to A- (Excellent) from A (Excellent) and issuer credit ratings (ICR) to "a-" from "a" of Cooperativa Seguros Group (Cooperativa) and its operating member, Cooperativa de Seguros Multiples de Puerto Rico (CSM) (San Juan, PR). The outlook for these ratings has been revised to stable from negative. Concurrently, A.M. Best has revised the outlook to stable from negative and affirmed the FSR of A- (Excellent) and ICR of "a-" of CSM's separately rated subsidiary, Real Legacy Assurance Company, Inc. (Real Legacy) (Guaynabo, PR).
The rating actions relative to CSM reflect the adverse reserve development reported by the company on recent accident years, which were driven by sinkhole losses in Florida and the resulting weakening in its underwriting performance. Despite these concerns, the outlook reflects CSM's strong capitalization and the implementation of management initiatives intended to reduce operating expenses. The outlook also recognizes the additional reinsurance, which provides some protection from additional sinkhole losses following management's decision to run-off the Florida operations.
The rating affirmations for Real Legacy reflect its strong capitalization, profitable operating performance and benefits derived from the company's affiliation with CSM, one of the leading multi-line providers in the Puerto Rico insurance market, which provides additional brand name recognition.
Partially offsetting these positive rating factors are Real Legacy's geographic risk concentration as a property writer in Puerto Rico and USVI, which exposes the company's results to frequent and potentially severe weather-related events. Other offsetting factors include the impact of the competitive local marketplace in which the company operates and the elevated underwriting expense ratio reflective of Real Legacy's heavy reliance on ceded reinsurance. While this reliance has reduced the level of net premiums with which to spread the company's fixed costs, a change in the company's reinsurance structure in 2011 is expected to mitigate this issue going forward. Despite these concerns, the outlook reflects Real Legacy's strong capitalization and improved operating performance.
The principal methodology used in determining these ratings is Best's Credit Rating Methodology - Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best's rating process and highlights the different rating criteria employed. Additional key criteria utilized include: "Risk Management and the Rating Process for Insurance Companies"; "Understanding BCAR for Property/Casualty Insurers"; and "Natural Catastrophe Stress Test Methodology." Methodologies can be found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.