A.M. Best Revises Under Review Status to Developing for Credit Ratings of ASSA Compañía de Seguros S.A., Affirms Credit Ratings of Affiliates
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A.M. Best has revised the implications of the under review status to developing from negative for the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “a” of ASSA Compañía de Seguros S.A. (ASSA) (Panama City, Panama). A.M. Best also has affirmed the FSR of A- (Excellent) and the Long-Term ICRs of “a-” of Lion Reinsurance Company Limited (Lion Re) (Bermuda) and Reaseguradora America SPC Ltd. (RAM Re) (Cayman Islands). The outlook of these Credit Ratings (ratings) is stable. All companies are ultimately owned by Grupo ASSA, S.A. (Grupo ASSA), a financial services holding company publicly traded on the Panama Stock Exchange.
The ratings of ASSA reflect the company’s balance sheet strength, which A.M. Best categorizes as strongest, as well as its adequate operating performance, favorable business profile and appropriate enterprise risk management (ERM).
The ratings of Lion Re reflect the company’s balance sheet strength, which A.M. Best categorizes as adequate, as well as its adequate operating performance, neutral business profile and appropriate ERM.
The ratings of RAM Re reflect the company’s balance sheet strength, which A.M. Best categorizes as adequate, as well as its adequate operating performance, neutral business profile and appropriate ERM.
ASSA’s ratings were placed under review with negative implications following the Aug. 7, 2017, announcement that ASSA had entered into an asset purchase agreement to fully acquire Assicurazioni Generali S.p.A. (Generali) insurance operations in Panama, subject to regulatory approvals in Italy and Panama. At that time, there were concerns on the financing structure of the acquisition, as well as potential pressure on the company’s risk-adjusted capitalization and the financial leverage that could arise from the operation.
While the transaction has not reached its closing despite achieving approval from regulators, the financial structure has been defined, and its potential impact on risk-adjusted capitalization has been revised, rendering results in terms of balance sheet strength, business profile and operating performance appropriate for the current rating. However, the under review with developing implications status recognizes that there is still an inherent implementation risk in the consolidation of the operations and the inclusion of financial leverage in the company. The under review status also acknowledges the potential strong market share the company could achieve once the Generali operations are integrated into ASSA.
Any material changes to ASSA’s financial profile will be reviewed to assess the impact on its ratings. A.M. Best will assess consolidated figures once available to determine future rating actions.
Lion Re has continued to post adequate operating performance from its affiliated insurance companies in the region and from new strategic business alliances, while maintaining very strong risk-adjusted capitalization. The company continues to support Grupo ASSA’s strategy while producing positive bottom line results amid healthy prospects for growth. A.M. Best expects Lion Re to continue playing an important role in Grupo ASSA’s strategy, as it consolidates operations in new regions by providing reinsurance capacity while maintaining its good capital position.
RAM Re is registered as a segregated portfolio company, currently integrated by two portfolios, and is licensed as a Class B(i) insurer under the Cayman Islands’ insurance law. RAM Re’s ratings are based on the steady performance of its operations and the nature of the portfolios managed. While the portfolios present high premium leverage, A.M. Best believes that the short-tail nature and non-catastrophic characteristics of the risks insured, combined with its stable operating performance, allows such premium leverage. Capitalization is adequate for RAM Re’s current ratings; however, as the portfolios continue to grow, or as new portfolios are integrated, ratings could become pressured at current capital levels. RAM Re has explicit support from its parent company through a commitment letter provided by Grupo ASSA, enhancing A.M. Best’s view of its financial strength.
The under review with developing implications status for ASSA’s ratings reflect the activities concerning the consolidation of operations between ASSA and Generali's insurance operations in Panama are still in the early stages. While the financial structure of these operations has now been addressed, questions remain regarding the possibility of deviations from the operation consolidations.
Drivers that could lead to a rating upgrade or a revision to a positive outlook for Lion Re include a continuation of the recent positive underwriting performance and consistent risk-adjusted capitalization over the next few years. Factors that could lead to a negative rating action include a material loss of capital from either claims or investments, leading to a reduced level of capital that does not support its ratings.
Drivers that could lead to a rating upgrade or a revision to a positive outlook for RAM Re include a reduction in premium leverage and continued good underwriting results, reflecting improved risk-adjusted capitalization. Factors that could lead to a negative rating action include increased premium leverage derived from increased underwriting, either by growth in volume of its current portfolios or by the inclusion of new ones without adequate capital that supports its current risk-adjusted capitalization.
A.M. Best remains the leading rating agency of alternative risk transfer entities, with more than 200 such vehicles rated throughout the world. For current Best’s Credit Ratings and independent data on the captive and alternative risk transfer insurance market, please visit www.ambest.com/captive.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. 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:
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 Understanding Best’s Credit Ratings.
For Lion Re and RAM Re:
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