FOR IMMEDIATE RELEASE
MEXICO CITY - NOVEMBER 21, 2022 11:14 AM (EST)
AM Best has affirmed the Financial Strength Rating of A (Excellent), the Long-Term Issuer Credit Rating (Long-Term ICR) of “a” (Excellent) and the Mexico National Scale Rating of “aaa.MX” (Exceptional) of Reaseguradora Patria, S.A. (Patria Re) (Mexico). AM Best also has affirmed the Long-Term ICR of “bbb” (Good) of Patria Re’s ultimate parent, Peña Verde, S.A.B. (Peña Verde) (Mexico). The outlook of these Credit Ratings (ratings) is stable. Per AM Best’s criteria procedure on insurance holding companies, Peña Verde’s rating reflects a standard notching from Patria Re’s Long-Term ICR.
The ratings reflect Patria Re’s balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
The stable outlooks on Patria Re’s ratings reflect Patria’s ability to maintain stable profitability metrics and the strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), while implementing its business expansion strategy amid challenging years faced by Latin America’s insurance markets.
Patria Re’s strongest balance sheet assessment is supported by the same assessment on its risk-adjusted capitalization, as measured by BCAR, low underwriting leverage, robust reinsurance program and the company’s strong liquidity metrics. The ratings also reflect its comprehensive ERM infrastructure and expansive knowledge of its core markets in Latin America, which reflects the company’s smooth implementation of its expansion strategy with a stable overseas operation outside its niche market.
Partially offsetting these strengths is Patria Re’s operating performance, impacted by the volatile valuation of investments in recent years, due to economic volatility in Mexico and most recently due to the COVID-19 pandemic, despite improvements in underwriting quality. The company has taken steps to alleviate concern related to the significant participation of equities in its investment portfolio and some catastrophe-prone lines of business, which could create volatility in the company’s operating performance, by shifting toward a more conservative investment strategy.
Patria Re has established a solid niche position in Mexico and in other Latin America markets, which allows it to accept profitable business selectively while maintaining a diversified product portfolio tailored to specific markets. This strategy has resulted in consistently favorable underwriting results over the years and has contributed to Patria Re’s enhanced risk-adjusted capitalization. A well-balanced reinsurance program placed among counterparties with a strong security level also reinforces the company’s risk-adjusted capitalization. Furthermore, the company’s underwriting leverage has remained at a conservative level for the past five years.
During 2021, the company reported positive bottom-line results, despite limitations posted by catastrophe reserve development, mainly driven by underwriting results. The company’s efforts to maintain stable claims and management expenses, coupled with strong underwriting practices, have resulted in a profitable first seven months for 2022; however, it remains limited by catastrophe reserve development.
AM Best considers Patria Re to be well-positioned at its current rating level. Factors that could lead to positive rating actions include a consistent improvement in profitability metrics underpinned by positive underwriting and bottom-line results, while maintaining its strongest level of risk-adjusted capitalization, as well as the continued and successful operation of its overseas expansion. Factors that may lead to negative rating actions include a sustained decline in profitability, significant deterioration in risk-adjusted capitalization and unsuccessful operations of the company’s overseas expansion plans.
The methodology used in determining these ratings is Best’s Credit Rating Methodology (Version Nov. 13, 2020), 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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