A.M. Best has upgraded the financial strength rating to A from A- (Excellent) and issuer credit rating (ICR) to “a” from “a-” of Reaseguradora Patria, S.A. (Patria Re) (Mexico). The outlook for these ratings was revised to stable from positive.
Concurrently, A.M. Best has upgraded the ICR of Patria Re’s ultimate parent, Peña Verde, S.A.B (Mexico), to “bbb” from “bbb-“. The outlook for this rating was revised to stable from positive. Per A.M. Best’s methodology on insurance holding companies, Peña Verde, S.A.B.’s rating reflects a standard notching from Patria Re’s ICR and is in line with companies of the same rating level.
The upgrade reflects Patria Re’s strong enterprise risk management infrastructure, expansive knowledge of its core Latin American markets and its outperformance of a peer group of regional reinsurers. The ratings also reflect Patria Re’s excellent risk-adjusted capitalization under various A.M. Best stress scenarios, as well as the company’s strong leverage and liquidity metrics. Patria Re has established a strong niche position in Mexico and Latin America, which allows it to selectively accept profitable business, while maintaining a diversified product portfolio tailored to specific markets. This strategy has resulted in consistently favorable underwriting results and enhanced Patria Re’s risk-adjusted capitalization.
Offsetting these strengths are Patria Re’s elevated expense structure due to its significant share in proportional contracts, the concentration of equities in its investment portfolio and the company’s exposure to frequent and severe catastrophic losses. In addition, Patria Re’s risk profile continues to slowly shift as a result of its assumption of exposures outside of its core markets. While this affords Patria Re additional geographic diversification, it is expanding into highly competitive and mature markets.
Furthermore, the reinsurance sector as a whole faces significant pricing pressure with third party capital taking a larger share of property catastrophe business and primary companies retaining more business. A.M. Best considers the reinsurance industry to be at an inflection point.
A.M. Best feels that Patria Re is well positioned at its current rating level. Factors that could lead to positive rating actions include continued strong underwriting and overall results in conjunction with maintenance of excellent risk-adjusted capitalization, as well as continued and successful implementation of its overseas expansion or an improvement of Mexico’s country risk tier. Factors that may lead to negative rating actions include an outsized catastrophic loss, a sustained decline in underwriting profitability, significant deterioration in risk-adjusted capitalization, an unsuccessful implementation of the company’s overseas expansion plans or a downgrading of Mexico’s country risk tier rating.
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