AM Best Revises Outlooks to Stable, Affirms Credit Ratings of Reunion Re Compañia de Reaseguros S.A.

MEXICO CITY--(BUSINESS WIRE)--
AM Best has revised the outlooks to stable from negative and affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb” (Good) of Reunion Re Compañia de Reaseguros S.A. (Reunion Re) (Argentina).

These Credit Ratings (ratings) reflect Reunion Re’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.

The revision of the outlooks to stable from negative reflects AM Best´s view of Reunion Re´s balance sheet strength being at the very strong level, despite consistent pressure driven from Argentina´s challenging macroeconomic environment, including sovereign rating deterioration and volatility in the company´s retrocession leverage stemming from reinsurance recoverables and ceded premium.

Reunion Re’s balance sheet strength remains underpinned by its risk-adjusted capitalization being at the strongest level, as measured by Best´s Capital Adequacy Ratio (BCAR). The ratings also reflect the company’s consistent profitability despite a volatile economic environment. Other positive rating factors include a well-structured and diversified reinsurance program, the company’s seasoned management team and synergies provided by its main shareholder. Partially offsetting these positive rating factors is the historic volatility in Reunion Re’s bottom line results derived from operating in an economy with high inflation and currency volatility, its exposure to capital controls, public debt restructuring and past uncertainty from the COVID-19 global pandemic.

Reunion Re initiated operations in Bueno Aires, Argentina in 2012, and ranks among the country’s top reinsurance companies in terms of premium market share. The company operates through a network of brokers and direct distribution channels in Argentina, Paraguay, Guatemala, Bolivia, Ecuador, Honduras and El Salvador.

Historically, the company has increased capital at a 56% compound annual growth rate supported by positive bottom-line results; this is driven by a consistent inflow of underwriting and investment income, which reflects the management team’s market knowledge and well-rounded experience in Argentina. A well-balanced reinsurance program placed among counterparties with a strong credit quality level also reinforces the company’s risk-adjusted capitalization and diminishes its credit risk exposure. In AM Best´s view, current capital levels are pressured by the credit quality of Reunion Re´s investment portfolio given the prevailing macroeconomic uncertainty in Argentina. In addition, spikes in the volume of reinsurance recoverables and ceded premium also pressure the company’s capital adequacy, which underly its current ratings.

In AM Best’s view, the reinsurer has shown disciplined underwriting in a highly volatile market that is driven by inflation and foreign exchange rate pressures. Historically, Reunion Re has managed to maintain overall profitability despite the negative effects derived from non-recurring adjustments in premium reporting, capital controls and public debt restructuring. By year-end 2022, the company reported negative bottom line results mainly driven by investment losses impacting the overall insurance industry and resulting from the spread between high inflation and currency devaluation rates. Nonetheless, Reunion Re was able to maintain underwriting profits as reflected by a 93.5% combined ratio during 2022. AM Best expects improvements in financial products as Argentina’s central bank (BCRA) accelerates the peso’s devaluation and the company reconfigures its portfolio.

Factors that could lead to negative rating actions include a deterioration in its risk-adjusted capitalization to a level that no longer supports the ratings in light of current macroeconomic risks, which could pressure AM Best’s view of Reunion Re’s balance sheet strength level. Additionally, aggressive premium growth resulting from the company’s geographic expansion that pressures capital to a level that no longer supports the ratings also lead to negative rating actions.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2023 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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Salvador Smith
Senior Financial Analyst

+52 55 1102 2720, ext. 108

[email protected]

Christopher Sharkey
Associate Director, Public Relations

+1 908 882 2310

[email protected]

Alfonso Novelo
Senior Director, Analytics

+52 55 1102 2720, ext. 107

[email protected]

Al Slavin
Senior Public Relations Specialist

+1 908 882 2318

[email protected]

Source: AM Best