Ratings Roundup: RAM Re, Grupo Nacional

March 8, 2013

A.M. Best Co. has assigned a financial strength rating of ‘A-‘ (Excellent) and an issuer credit rating of “a-” to Cayman Islands-based Reaseguradora America SPC, Ltd. (RAM Re), both with stable outlooks. The ratings reflect RAM Re’s “adequate capitalization and explicit parental support,” said Best. “The ratings also consider RAM Re’s strategic role as an alternative risk transfer vehicle. RAM Re is a wholly-owned subsidiary of ASSA Compania Tenedora, S.A., which is a wholly-owned subsidiary of Grupo ASSA, S.A., a publicly traded holding company on the Panama stock exchange.” Best also noted that the company’s ratings are enhanced by “a sound business plan, upon which the profitability and liquidity measures of the ratings are based.” The ratings are also supported” by an amount of capital that meets Best’s requirements for newly formed companies as measured by Best’s Capital Adequacy Ratio (BCAR). Initially, RAM Re will operate as a Cayman Islands-based segregated portfolio company with a core and three cells, which will underwrite monthly cover for its participants. RAM Re will write reinsurance business mainly with ASSA Compania Tenedora, S.A.’s operating subsidiaries in Panama, Costa Rica, Nicaragua and El Salvador. Initially, RAM Re will underwrite bancassurance, property and casualty (excluding catastrophe cover), credit and debit card fraud, unemployment benefits and short-term group life related products.” As a partial offsetting factor Best cited the “execution risk due to the unproven start-up nature of this company. Rating drivers that could lead to a positive outlook or an upgrading of RAM Re’s ratings are a stable underwriting performance, a reduced overall exposure over the next few years and a successful implementation of its business plan. Drivers that could lead to a negative outlook or a downgrading of the ratings are a material loss of capital from claims, a reduced level of capital that does not support the ratings or an increase in net retention.” In conclusion Best pointed out that RAM Re’s ratings are tied to its “internal assessment of Grupo ASSA, S.A.; therefore, unfavorable operating performance or material loss of capital could result in changes to the captive’s ratings.” In addition Best said it would “closely monitor RAM Re’s progress against its business plan, which was used to assess the assigned ratings. Material and/or adverse deviation from this plan would likely result in downward pressure on RAM Re’s ratings.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Mexico’s Grupo Nacional Provincial, S.A.B. (GNP), both with stable outlooks. However, Best said the rating actions “reflect GNP’s continued elevated underwriting leverage relative to stockholders’ equity, its volatile underwriting and net earnings performance by segment in recent years.” More positive factors include “GNP’s leading position in the Mexican insurance market, recent improvements in the operating results of the auto segment, its diversified business profile and historically profitable overall operating performance. GNP also maintains a conservative valuation policy reserve and high adequacy level of capital according to Mexican regulations. The ratings of GNP also recognize its supportive risk-adjusted capitalization and consistent growth in embedded valued and improved lapse experience. GNP’s embedded value has grown consistently over the review period, and together with growth in its appraisal value, is reflective of contributions to shareholder value of existing and future new business.” Best noted that “GNP is the largest domestic insurance company in Mexico as measured by direct premiums written. The company operates as a composite insurer of life and non-life business with core business segments in life, health and automobile coverage.” Best added that it believes “GNP’s ratings are well positioned in the near to medium term based on its current financial strength and risk management profile. Key rating factors that may result in negative rating actions include further volatility in earnings, a decrease in the company’s capital strength and constraints in its financial flexibility to support continuing new business growth. Potential positive rating triggers would include sustained improvement in GNP’s underwriting results in conjunction with tangible improvements in Mexico’s regulatory environment and other country risk metrics. Possible negative rating triggers could include deterioration in the company’s underwriting results, and consequently, a decline in its risk-based capitalization.”

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