Best’s News & Research Service - March 10, 2022 10:15 AM (EST)
AM Best Revises Issuer Credit Rating Outlook to Stable for AVLA Seguros de Crédito y Garantía S.A.
- March 10, 2022 10:15 AM (EST)
Oldwick //BestWire// - AM Best has revised the outlook to stable from negative for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of B++ (Good) and the Long-Term ICR of “bbb+” (Good) of AVLA Seguros de Crédito y Garantía S.A. (AVLA) (Chile). The outlook of the FSR is stable.
These Credit Ratings (ratings) reflect AVLA’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
AVLA began operations in Chile in 2013 as AVALCHILE, before changing its name to AVLA in 2016. The company is majority owned by Inversiones AVLA Seguros S.A., which holds a 90.27% stake, with the remaining 9.73% held by the group’s ultimate parent, AVLA S.A. The company specializes in financial guarantees, credit insurance and surety; it ranks first in Chile in surety and financial guarantees and third in credit insurance, based on market share.
AVLA’s business profile is considered neutral. During 2019 and 2020, the company faced adverse market conditions (social unrest and the COVID-19 pandemic), but its management reacted promptly with a strategy to take advantage of the economic rebound during 2021, resulting in a profitable recovery for its business. In AM Best’s view, management’s capabilities remain key to adjusting its product offering amid the evolving market conditions.
AM Best views the company’s operating performance as adequate; results as of September 2021 are characterized by a recovery in premiums and revenues, based on related analysis. The economic growth prospects are favorable for the underlying industries in which the company operates, creating the potential for growth. For 2022, AM Best will continue to monitor AVLA’s results and underwriting quality as Chile’s economy recovers.
The revision of the Long-Term ICR outlook to stable from negative recognizes management’s underwriting capabilities during 2021 to restore profitable premium growth after 2020’s dire conditions in the surety, guarantee and credit insurance segments.
AVLA’s balance sheet strength assessment is strong given its solid capital base for the risks it undertakes, as reflected in its strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). However, financial leverage at its holding company level limits AM Best’s view of the company’s balance sheet strength to the strong level, given the relevance of the company on its parent in terms of revenue and profits. This strong assessment level also recognizes the willingness and proven history of capital contributions made by its shareholders to support AVLA’s growth, with the latest one taking place in 2021, which was equivalent to approximately one third of its reported equity at year-end 2020.
Negative rating actions could take place if the company’s business scope continues to affect operating performance or creates significantly volatility in its underwriting results into 2022, especially if its capital position is affected by a continuation of negative bottom line results.
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:
- Understanding Global BCAR (Version July 22, 2020)
- Available Capital & Holding Company Analysis (Version Oct. 13, 2017)
- Rating Surety Companies (Version April 7, 2021)
- Scoring and Assessing Innovation (March 5, 2020)
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: Feb. 5, 2021.
- Date Range of Financial Data Used: Dec. 31, 2015-Sept. 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.
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