Best’s News & Research Service - September 01, 2023 12:47 PM (EDT)
AM Best Revises Issuer Credit Rating Outlook to Positive; Affirms Credit Ratings of BTG Pactual Resseguradora S.A.
- September 01, 2023 12:47 PM (EDT)
Mexico City //BestWire// - AM Best has revised the Long-Term Issuer Credit Rating (Long-Term ICR) outlook to positive from stable and affirmed the Financial Strength Rating (FSR) of B++ (Good) and the Long-Term ICR of “bbb” (Good) of BTG Pactual Resseguradora S.A. (BTG Re) (Brazil). The outlook of the FSR is stable.
The Credit Ratings (ratings) reflect BTG Re’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 revised Long-Term ICR outlook to positive from stable reflects AM Best’s expectation that BTG Re will maintain the strongest balance sheet assessment over the intermediate term, as the holding company’s corporate governance continues to evolve.
BTG Re is a local reinsurer in Brazil, operating predominantly in the surety segment in Brazil, Latin America, and recently, in Portugal and Spain, as part of a fronting agreement. Also recent is the agricultural line of business, which BTG Re assumes from its sister primary company, TOO Seguros S.A. The company’s parent, Banco BTG Pactual S.A. (BTG Pactual) [B3: BPAC11], provides operational support and risk management capabilities and would be able to provide liquidity if needed.
In the past two years, BTG Re entered into two significant loss portfolio transfers, which increased the size of its balance sheet materially. BTG Re’s management has represented that these transactions were opportunistic, and the company’s focus remains unchanged. These loss portfolio transfers expired and completely ran off by the end of 2022. BTG Re’s risk-adjusted capitalization remains at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR).
Also reflected BTG Re’s ratings is the impact of BTG Pactual’s credit profile and the challenging and volatile macroeconomic and political environment in Brazil, which continues to hamper meaningful recovery and stability in the country. While Brazil has recovered from the COVID-19 pandemic, uncertainties regarding the fiscal situation persist, aggravated by volatility in inflation and interest rates. BTG Pactual has shown consistent improvement in its results and credit strength while expanding and diversifying its operations; however, BTG Re’s ratings are limited somewhat by its domestic operating environment.
BTG Re maintains solid standalone attributes in terms of operating performance, including low loss and expense ratios, and the strongest level of risk-adjusted capitalization, as measured by BCAR. BTG Re has produced positive earnings since inception, driven by underwriting results and investment income. BTG Re also benefits from a solid retrocession program that mitigates its underwriting exposures; the company’s reinsurance retention remains low. AM Best’s analysis of BTG Re benefits from BTG Pactual’s expertise, stemming from its long track record with a portfolio of large companies.
AM Best continues to monitor BTG Re’s balance sheet strength, operating performance, risk-adjusted capitalization and the execution of its product and geographic expansion, along with the credit profile of its parent.
Positive rating actions could take place if the credit profile of the ultimate parent, BTG Pactual, continues to improve, supported by a more robust corporate governance framework in the group. Negative rating actions could take place if a deterioration in its business profile occurs due to volatility in the country’s economy, which could affect its performance.
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:
- Evaluating Country Risk (May 4, 2023)
- Understanding Global BCAR (July 6, 2023)
- Available Capital & Holding Company Analysis (Oct. 13, 2017)
- Rating Surety Companies (April 7, 2021)
- Scoring and Assessing Innovation (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, relevant sources of information and the frequency for updating ratings, please refer to Guide to Best’s Credit Ratings.
- Previous Rating Date: Aug. 3, 2022
- Initial Rating Date: Feb. 20, 2015
- Date Range of Financial Data Used: Dec. 31, 2018 – June 30, 2023
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