Fitch Affirms Reaseguradora Patria ‘BBB’ Rating

October 6, 2004

Fitch Ratings announced that it has affirmed Reaseguradora Patria, S.A. (Patria)’s ‘BBB’ international scale insurer financial strength (IFS) rating with a stable outlook.

The rating agency also noted that Fitch Mexico has affirmed Patria’s national-scale IFS rating of “AA(mex),” and that it has withdrawn the “BBB” international IFS rating for Patria’s wholly owned Panamanian subsidiary, Reaseguradora Patria Internacional S.A. (Internacional). “Internacional has been in run-off since 1999 and its license as a reinsurance company was canceled at Patria request following approval from the Panamanian regulator,” said, Fitch. “Internacional’s block of business was assumed by Patria.”

“Patria’s ratings strengths include its strong niche position in Latin America reinsurance markets, particularly in Mexico as a result of its customer-service orientation and tenure in the market; tight management of underwriting risks and consistent focus on short-tail exposures; moderate credit, liquidity and currency risks in its investment portfolio; and consistent profitability.”.

It noted that, “Patria’s capital position, provides adequate support for growth and risk exposures and its solvency margin was more than 3.0 times the local regulatory requirement at year-end 2003. Underwriting results remain stronger than global peers, but are constrained by high costs of retrocessionary protections, on which Patria is dependent.

“Ratings concerns include the company’s relatively small size, and the uncertainty this places on its long-term competitive positioning; heightened price competition from global reinsurers in the region; limited financial flexibility because of closely held ownership; higher-than-average exposures to property catastrophe losses and heavy reliance on the continuing availability of affordable retrocession.”

Fitch also observed that Patria “has higher exposure to equity holding than its global peers and is challenged to obtain adequate investment yields under the local regulatory environment and increasing volatility in local financial markets.”

It described Reaseguradora Patria as “a Mexican property/casualty reinsurance company, whose main business lines are fire, auto and transportation which together accounted for 68 percent of net premium written (NPW) in 2003. Life and surety bonds reinsurance provided 14 percent and 4 percent of NPW, respectively. Slightly above 60 percent of NPW was Mexican business, while the balance was written in Central America, the Caribbean and some South American countries.”

Fitch observed that its “ratings are based on an international rating scale and are fully comparable to other Fitch international ratings assigned globally. Fitch Mexico’s rating is based on a local rating scale unique to Mexico and is not impacted by sovereign rating issues. It is comparable only to other national scale IFS ratings in Mexico.”

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