Ratings Recap: Mapfre Panama, Infrassure, Lemma

August 8, 2012

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Mapfre Panama, SA, both with stable outlooks. Best said the “ratings reflect Mapfre Panama’s solid capitalization, consistent overall earnings, generally favorable underwriting performance and local market expertise. Mapfre Panama operates as a composite insurer of life and non-life business and remains one of the three largest domestic insurance companies in Panama.” Best explained that the “company’s favorable underwriting results and investment income have resulted in consistent overall earnings, which have led to organic surplus growth in recent years. This has enabled Mapfre Panama to continue to enhance its surplus position and maintain more than adequate risk-adjusted capitalization for its current business profile. In addition, as a subsidiary of MAPFRE SA, Mapfre Panama benefits from group synergies, as well as access to MAPFRE SA’s considerable global resources, including financial, operational and intellectual expertise, and this complements its already well-established local market proficiencies.” As partial offsetting factors Best cited the “geographic concentration of Mapfre Panama’s operations, the increasingly competitive market environment in which the company operates and its reliance on reinsurance as a catastrophe risk mitigation strategy.” Best indicated that while “Mapfre Panama’s ratings are stable, factors that could contribute to positive rating actions include continued strong underwriting performance and overall profitability, as well as an upgrade in Panama’s country risk tier rating. Factors that may lead to negative rating actions include a significant loss of the company’s market share, sustained decline in its underwriting profitability, significant deterioration in risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio (BCAR) and a downgrade in Panama’s country risk tier rating.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Mapfre Panama, SA, both with stable outlooks. Best said the “ratings reflect Mapfre Panama’s solid capitalization, consistent overall earnings, generally favorable underwriting performance and local market expertise. Mapfre Panama operates as a composite insurer of life and non-life business and remains one of the three largest domestic insurance companies in Panama.” Best explained that the “company’s favorable underwriting results and investment income have resulted in consistent overall earnings, which have led to organic surplus growth in recent years. This has enabled Mapfre Panama to continue to enhance its surplus position and maintain more than adequate risk-adjusted capitalization for its current business profile. In addition, as a subsidiary of MAPFRE SA, Mapfre Panama benefits from group synergies, as well as access to MAPFRE SA’s considerable global resources, including financial, operational and intellectual expertise, and this complements its already well-established local market proficiencies.” As partial offsetting factors Best cited the “geographic concentration of Mapfre Panama’s operations, the increasingly competitive market environment in which the company operates and its reliance on reinsurance as a catastrophe risk mitigation strategy.” Best indicated that while “Mapfre Panama’s ratings are stable, factors that could contribute to positive rating actions include continued strong underwriting performance and overall profitability, as well as an upgrade in Panama’s country risk tier rating. Factors that may lead to negative rating actions include a significant loss of the company’s market share, sustained decline in its underwriting profitability, significant deterioration in risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio (BCAR) and a downgrade in Panama’s country risk tier rating.”

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘A-‘ (Excellent) and the issuer credit ratings of {{dq5}} of Infrassure Ltd. (Switzerland) and its affiliate, Infrassure Ltd., Vaduz, which is based in Liechtenstein. The outlook for all ratings remains stable. The ratings of Infrassure {{dq6}} Best explained. As a partial offsetting factor Best noted the {{dq7}} Infrassure Vaduz’s ratings “reflect the significant support provided by Infrassure in the form of a 90 percent quota share reinsurance agreement,” Best explained. “Infrassure Vaduz remains strategically important to Infrassure as a means of writing direct insurance business within the European Union. Infrassure’s risk-adjusted capitalization remained stable in 2011. The company’s capitalization continues to be enhanced by an equalization reserve, which at year-end 2011 amounted to CHF 12.7 million [$13.056 million]. In 2011, the reduction in net written premiums, which was due to the company’s response to the current market conditions, contributed to a fall in net required capital. However, this positive effect was offset by a dividend payment of CHF 12.0 million [$12.324 million] and a deterioration in net income predominantly caused by natural catastrophes. Infrassure reported a pre-tax profit of CHF 5.1 million [$5.238 million] for the first six months of 2012, with a combined ratio of 109 percent (based on the company’s own calculations). Technical performance was impaired by four large losses, including a large forest fire in Chile.” Best added that despite continuing weak market conditions in Infrassure’s core line of business, it expects that the “company will return to underwriting profitability by the end of 2012. The company reported a pre-tax loss of CHF 3.1 million [$3.184 million] at the end of 2011. Results were impacted by poor investment returns, including significant market and foreign exchange losses, as well as several large losses totaling CHF 107.7 million [$110.624 million]. Nevertheless, Infrassure reported a respectable loss ratio of 66.1 percent and a combined ratio of 93.2 percent at year end.” Best also pointed out that “Infrassure maintains a good position as a specialist insurer of engineering and industrial property risks. The company benefits from the combination of specific engineering knowledge and insurance expertise in its underwriting function. In 2012, gross written premium is unlikely to significantly increase, as the company seeks to maintain underwriting disciple in challenging times. Upward rating movement could occur if there were a marked and sustained improvement in Infrassure’s underwriting performance. Downward rating movement may be triggered if there were a continuous deterioration in technical and/or overall results and a notable decrease in the company’s risk-adjusted capitalization.

A.M. Best Europe – Rating Services Limited has downgraded the financial strength rating to ‘B’ (Fair) from ‘B+’ (Good) and issuer credit rating to “bb+” from “bbb-” of Ukraine’s Lemma Insurance Company, and has revised its outlook on both ratings to stable from negative. Best said the rating actions reflect its concerns “regarding the continuing deterioration of the Ukrainian economy as well as ongoing political uncertainty.” Best also noted that “Lemma’s financial risk business has increased, which deepens the company’s exposure to the domestic economy. Lemma’s profile and investment portfolio remain concentrated within the Ukraine, which has suffered in recent years as a result of the global financial crisis and political instability.” Best said it believes that the “risks pertaining to operating within the Ukrainian market have increased and consequently could have a negative impact on the company’s business profile and investments. Overall business continues to be volatile; in 2011, gross written premiums increased by 53 percent to UAH 598 million ($76 million) following two years of declining premiums. This increase included a 60 percent increase in financial risk business to UAH 94 million ($11 million), representing 7 percent of capital and surplus (2010: 5 percent). Although the performance of this business has improved since the financial crisis, it further exposes the company to the Ukrainian economy.” Best noted that during 2011, “Lemma’s profit before tax increased to UAH 272 million ($33 million); the result was driven by an improved technical performance as well as an increase in the retention ratio.” Best said it expects that the “combined effect of an increase in business and a reduction in reinsurance coverage will expose Lemma to higher underwriting risk going forward.” In Best’s view, “Lemma’s risk-adjusted capitalization is expected to slightly decline in 2012, as a result of increased net premium risk as the company expands its business. Although the impact of the loss of Zemelnyi Bank has been factored into Best’s analysis, risk-adjusted capitalization for 2011 remains in line with Lemma’s current ratings. Negative rating actions could result from a further deterioration in Ukraine’s economy as well as a deterioration in underwriting performance and risk-adjusted capitalization. Positive rating actions could result from an improvement in Lemma’s country risk profile as well as an improvement in risk-adjusted capitalization.”

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