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Best’s News & Research Service - April 28, 2023 04:22 PM (EDT)

AM Best Upgrades Credit Ratings of Austral Participações S.A.’s Insurance Subsidiaries; Revises Outlooks to Stable

  • April 28, 2023 04:22 PM (EDT)
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Mexico City //BestWire// - AM Best has upgraded the Financial Strength Rating to A- (Excellent) from B++ (Good) and the Long-Term Issuer Credit Ratings (Long-Term ICR) to “a-” (Excellent) from “bbb+” (Good) of Austral Resseguradora S.A. (Austral Re) and Austral Seguradora S.A. Concurrently, AM Best has affirmed the Long-Term ICR of “bb+” (Fair) of Austral Participações S.A. (Austral). The outlook of these Credit Ratings (ratings) has been revised to stable from 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 strongest, 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 will remain at the strongest level, supported by 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 reduced significantly. These lines generated volatility for Austral’s operations in 2019 and 2020. In 2021, the group demonstrated the initial benefits of its business portfolio adjustments. As of 2022, Austral continues to show a solid capital structure as shown in its risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), assessed at the strongest level 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. On the group’s investment portfolio, 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 can be seen generally as positive, AM Best recognizes that the high market reference rates are a consequence of an inflationary economy, which in turn contributed to the reduction of inflationary pressures at year-end 2022 without affecting 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 significant uncertainty initially brought on by the COVID-19 pandemic, while building its presence in the wider Latin America (re)insurance market, 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 homegrown and global (re)insurers compete for market share. In addition, Austral must continue to weather the still significant macroeconomic challenges over the short and medium term.

Negative rating actions could occur if the group’s operating performance decays compared with the projections presented to AM Best. Negative rating actions also may occur if the group’s risk-adjusted capitalization experiences an adverse impact from the recent portfolio changes or other issues.

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 .

Key insurance criteria reports utilized:

  • Evaluating Country Risk (Version Oct. 13, 2017)

  • Understanding Global BCAR (Version June 30, 2022)

  • Catastrophe Analysis in A.M. Best Ratings (Version March 10, 2023)

  • Available Capital & Holding Company Analysis (Version Oct. 13, 2017)

  • Rating Surety Companies (Version April 7, 2021)

  • Scoring and Assessing Innovation (Version Feb. 27, 2023)

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: April 13, 2022

  • Date Range of Financial Data Used: Dec. 31, 2018-Dec. 31, 2022

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.

AM Best receives compensation for interactive rating services provided to organizations that it rates. AM Best may also receive compensation from rated entities for non-rating related services or products offered by AM Best. AM Best does not offer consulting or advisory services. For more information regarding AM Best’s rating process, including handling of confidential (non-public) information, independence, and avoidance of conflicts of interest, please read the AM Best Code of Conduct. 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.

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