Best’s News & Research Service - September 13, 2024 01:06 PM (EDT)
AM Best Upgrades Issuer Credit Rating of Austral Participações S.A., Affirms Credit Ratings of Subsidiaries
- September 13, 2024 01:06 PM (EDT)
//BestWire// - AM Best has upgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb-” (Good) from “bb+” (Fair) of Austral Participações S.A. (Austral). Concurrently, AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term ICRs of “a-” (Excellent) of Austral Resseguradora S.A. (Austral Re) and Austral Seguradora S.A. The outlook of these Credit Ratings (ratings) is stable. All companies are domiciled in Brazil and collectively referred to as Austral.
The ratings reflect Austral’s balance sheet strength, which AM Best assesses at the strongest level, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
The stable outlooks are underpinned by AM Best’s expectation that Austral’s balance sheet strength assessment will remain at the strongest level, supported by internal capital generation and improved risk modeling.
Due to the most recent update of AM Best’s Transfer and Convertibility Ceilings, Austral’s Long-Term ICR has been upgraded to match the current level of Brazil. As of June 2024, Austral continued to show a solid capital structure as shown in its risk-adjusted capitalization being assessed at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), coupled with positive bottom line and technical results for each of its subsidiaries. Additionally, Austral maintains a retrocession program with highly rated counterparties as it remains dependent on reinsurance to provide additional market capacity.
AM Best expects that Brazil's double-digit interest rate environment will continue to increase the contribution of Austral’s investment income to its operating results, compared with recent years, potentially helping surplus growth. While a high interest rate environment generally can be viewed as positive, AM Best recognizes that the high market reference rates are a consequence of the inflationary environment; however, the higher rates also contributed to the easing of inflation-related pressures at year-end 2022 and 2023, and overall, did not affect the group’s performance.
AM Best views Austral’s business profile as neutral while recognizing the group’s successful efforts to create a more-diversified book of business and better geographic spread of risk over time. Austral continues to grow amid macroeconomic challenges while building its presence in the wider Latin America (re)insurance market. Austral has done this by predominantly writing energy, surety and financial guarantee, commercial property/casualty, marine, aviation and transportation, life and liability (re)insurance lines of business for the large- and medium-sized commercial segment.
Partially offsetting these positive rating factors is Brazil’s highly competitive (re)insurance market as domestic and global (re)insurers compete for market share. In addition, Austral must continue to weather the negative impact of catastrophic events that took place during 2023 such as Hurricane Otis. As of May 2024, the group expects to overcome the floods that took place in Rio Grande do Sul supported by its prudent retrocession program put in place with highly rated reinsures.
Negative rating actions could take place if Austral’s risk-adjusted capitalization experiences adverse impact from recent portfolio changes. While positive rating actions are unforeseen in the short term, a positive impact on the ratings could take place in the medium term if the operating performance of the company continues to strengthen and reduce its volatility.
The methodology used in determining these ratings is Best’s Credit Rating Methodology (Version Aug. 29, 2024), 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:
· Evaluating Country Risk (Version June 6, 2024)
· Understanding Global BCAR (Version Aug. 1, 2024)
· Catastrophe Analysis in AM Best Ratings (Version Feb. 8, 2024)
· Available Capital and Insurance Holding Company Analysis (Version Aug. 15, 2024)
· Rating Surety Companies (Version April 25, 2024)
· Scoring and Assessing Innovation (Version Feb. 27, 2023)
· Measuring Transfer and Convertibility Risk (Version July 11, 2024)
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, relevant sources of information and the frequency for updating ratings, please refer to Guide to Best’s Credit Ratings.
· Previous Rating Date: May 15, 2024
· Initial Rating Date: Feb. 26, 2021
· Date Range of Financial Data Used: Dec. 31, 2018-June 31, 2024
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
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