Best’s News & Research Service - August 19, 2021 01:57 PM (EDT)
AM Best Affirms Credit Ratings of Mercantil Reaseguradora Internacional, S.A.
- August 19, 2021 01:57 PM (EDT)
Mexico City //BestWire// - AM Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb” (Good) of Mercantil Reaseguradora Internacional, S.A. (Mercantil Re) (Panama). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Mercantil Re’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).
Mercantil Re is the wholly owned startup reinsurer of Mercantil Seguros y Reaseguros, S.A., part of Mercantil group’s international companies controlled by the ultimate parent, Mercantil Servicios Financieros Internacional, S.A., which provides synergies and operating efficiencies. The company was established in 2019 in Panama with the main purpose of supporting group’s regional expansion throughout Latin America.
Mercantil Re’s balance sheet strength is underpinned by its strong risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), and also is supported by a well-structured reinsurance program placed with highly rated retrocessionaries, and a conservative investment strategy aimed at providing liquidity and maintaining appropriate asset-liability management. Additionally, the company’s ERM framework is considered appropriate, as it benefits from the group’s guidelines and expertise.
In AM Best’s view, Mercantil Re’s operating performance reflects expenses and dependence upon investment income, given the company’s startup nature. However, breakeven was achieved in 2020, driven by management’s track record in underwriting practices, a diversified reinsurance structure and new business origination. AM Best expects the company to maintain a profitable operating performance above the 1.6% return on equity reflected in 2020.
Additionally, Mercantil Re’s limited business profile reflects the company’s execution risk driven by its expansion strategy and a strong competitive environment in its target geographic markets.
Positive factors that could improve Mercantil Re’s rating levels or outlooks include a sustained and successful improvement in business profile with good quality underwriting, which supports profitability and a strong balance sheet assessment. Factors that could lead to negative rating actions include adverse financial performance that leads to a significant deterioration in its risk-adjusted capitalization. Additionally, if AM Best determines that Mercantil Re’s strategic importance to its group has diminished, the ratings also could be downgraded.
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:
- Available Capital & Holding Company Analysis (Oct. 13, 2017)
- Catastrophe Analysis in AM Best Ratings (Version Oct. 13, 2017)
- Evaluating Country Risk (Version Oct. 13, 2017)
- Scoring and Assessing Innovation (Version March 5, 2020)
- Understanding Global BCAR (Version July 22, 2021)
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.
- Previous Rating Date: Aug. 7, 2020
- Date Range of Financial Data Used: Dec. 31, 2015-June 30, 2021
This press release relates to rating(s) that have been published on AM Best’s website. For additional 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.
AM Best does not validate or certify the information provided by the client in order to issue a credit rating.
While the information obtained from the material source(s) is believed to be reliable, its accuracy is not guaranteed. AM Best does not audit the company’s financial records or statements, or otherwise independently verify the accuracy and reliability of the information; therefore, AM Best cannot attest as to the accuracy of the information provided.
AM Best’s credit ratings are independent and objective opinions, not statements of fact. AM Best is not an Investment Advisor, does not offer investment advice of any kind, nor does the company or its Ratings Analysts offer any form of structuring or financial advice. AM Best’s credit opinions are not recommendations to buy, sell or hold securities, or to make any other investment decisions. View our entire notice for complete details.
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AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.