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Best’s News & Research Service - April 13, 2022 12:00 PM (EDT)

AM Best Affirms Credit Ratings of Austral Participações S.A. and Its Subsidiaries

  • April 13, 2022 12:00 PM (EDT)
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Oldwick //BestWire// - AM Best has affirmed the Long-Term Issuer Credit Rating (Long-Term ICR) of “bb+” (Fair) to Austral Participações S.A. (Austral). The outlook of this Credit Rating (rating) is positive. Concurrently, AM Best has affirmed the Financial Strength Rating (FSR) of B++ (Good) and the Long-Term ICR of “bbb+” (Good) of Austral Resseguradora S.A. (Austral Re) and Austral Seguradora S.A. The outlook of these ratings is positive. All companies are domiciled in Brazil, and collectively are referred to as Austral.

The ratings reflect Austral’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.

The positive outlooks are underpinned by AM Best’s expectation that Austral’s balance sheet strength will remain solid, supported by strong internal capital generation, the recent reduction of its catastrophe exposures and continued improvement and stabilization of its operating performance, as its exposure to climate-related catastrophe reinsurance was significantly reduced. These lines generated volatility for Austral’s operations in 2019 and 2020. In 2021, the company demonstrated the initial benefits of its business portfolio adjustments. However, balance sheet strength continues to be assessed at the very strong level, despite the fact that its risk-adjusted capitalization, as measured by the Best’s Capital Adequacy Ratio (BCAR), scored at the strongest level. During the current year, AM Best will be monitoring the stability of Austral’s operating results.

Additionally, Austral maintains a retrocession program with highly rated counterparties as it remains dependent on reinsurance to provide additional market capacity. On the investment portfolio, AM Best expects that the double-digit interest rate environment in Brazil will 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 can generally be seen as positive, AM Best recognizes that the high market reference rates are a consequence of an inflationary economy, which may lead to loss cost inflation, adversely impacting profitability, and reduce the long-term growth of the Brazilian economy, negatively affecting the overall business environment.

AM Best views Austral’s business profile as neutral, while recognizing the company’s successful efforts to create a more diversified book of business and better geographic spread of risk over time. Austral continues to grow amid significant uncertainty initially brought on by the pandemic, while building its presence in the wider Latin America (re)insurance market, predominantly writing energy, surety and financial guarantee, commercial property and casualty, marine, aviation and transportation, life and liability (re)insurance lines of business for the large- and medium-size commercial segment.

Partially offsetting these positive rating factors is Brazil’s highly competitive (re)insurance market as homegrown and global (re)insurers compete for market share. In addition, Austral also must continue to weather the still significant macroeconomic challenges over the short and medium term.

Positive rating actions could follow if Austral maintains its solid risk-adjusted capitalization and low volatility in its long-term underwriting performance, given the changes in its book of business, which could ultimately support an improvement in its balance sheet strength assessment. Negative rating actions could occur if the group’s operating performance decays compared with the projections presented to AM Best. Negative rating actions may also occur if risk-adjusted capitalization experiences an adverse impact from the recent portfolio changes or other issues.

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 Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

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.

Reinsurers Financial Strength Latin America Press Release A.M. Best Rating Services, Inc. Brazil Insurance Best's Credit Rating Action Issuer Credit Rating

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