FOR IMMEDIATE RELEASE
LONDON - JANUARY 31, 2019 11:27 AM (EST)
AM Best has affirmed the Financial Strength Rating of B+ (Good) and Long-Term Issuer Credit Rating of “bbb-” of Abarca - Companhia de Seguros S.A. (Abarca) (Portugal). The outlook of these Credit Ratings (ratings) remains stable.
The ratings reflect Abarca’s balance sheet strength, which AM Best categorises as strong, as well as its adequate operating performance, limited business profile and marginal enterprise risk management. Limiting the ratings is the inherent uncertainty surrounding the execution of Abarca’s business plan as the company is in a start-up phase.
Abarca has a limited, albeit niche business profile as a monoline insurer, focusing entirely on surety insurance in Spain and Portugal. Whilst the company has a limited market profile in Spain, where it derives most of its revenue, it holds a leading position in the smaller Portuguese market. Offsetting rating factors include the company’s geographical and product concentrations, amplified by the highly competitive nature of the Spanish surety market. AM Best expects that Abarca will remain a small player in the Iberian surety market, servicing small-to-medium sized companies whilst providing surety associated service and expertise.
Based on Abarca’s business plan, risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR) model, is projected to remain at the strongest level through the start-up phase, supported by good internal capital generation. The company’s balance sheet strength is further supported by a conservative investment portfolio and excellent liquidity, as all investments are held in cash, and the absence of debt. Offsetting factors include Abarca’s high dependence on reinsurance, uncertainty surrounding the sufficiency of loss reserves in the absence of loss history, and its small capital base, which has the potential to exacerbate the sensitivity of its solvency position.
The company’s adequate operating performance assessment is based on AM Best’s expectation of stable prospective earnings, given current market conditions and Abarca’s extensive reinsurance programme. Technical results are anticipated to be dependent on the economic conditions in Spain and Portugal, which will dictate the claims experience resulting from insolvencies in the market. There were no reported or paid claims during 2018, highlighting the favourable market conditions and improvements in Abarca’s risk selection. Furthermore, AM Best notes that the company has the flexibility to actively manage its portfolio and take mitigating actions should the creditworthiness of a policyholder diminish.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
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