Fitch Affirms Reaseguradora Patria’s IFS Ratings at ‘A-‘ and ‘AAA(mex)’; Outlook Stable

MONTERREY, Mexico--(BUSINESS WIRE)-- Fitch Ratings has affirmed Reaseguradora Patria S.A.'s (Patria) International Insurer Financial Strength (IFS) rating at 'A-' and its National Scale IFS rating at 'AAA(mex)'. The Rating Outlook is Stable.

KEY RATING DRIVERS

The rating actions consider Patria's adequate technical performance, low operating leverage ratio, conservative reserving approach and good liquidity position. Also, Fitch views positively qualitative factors such as Patria's corporate governance and management, its consistent market strategy, geographical diversification and balanced reinsurance activity. The rating remains constrained by the company's modest size relative to global reinsurance competitors and above average exposure to variable income investments.

Patria's net loss ratio increased from 34% at September 2014 to 48% at September 2015 due to several claims retained in that period, although the main impact came from U.S. dollar strengthening, which increases the cost of claims paid. Its largest volume of operating costs at September 2015 was largely attributed to the reclassification of costs by the opening of offices abroad. Consequently, its combined ratio increased from 98% at September 2014 to 108% at September 2015. However, it additionally considers the creation of a large volume of catastrophic reserves in accordance to local requirements and the high level of catastrophic exposures in the markets where operates. The combined ratio excluding those reserves, which Fitch consider strengthens Patria's balance sheet, was 91% at September 2015.

Patria's net income increased 140% as of September 2015 mainly driven by a favorable evolution in its net financial income, which reached 43% of premiums earned at September 2015, above the 26% registered at September 2014. This derived from the positive trend in the market value of its investments along with an adequate management and investment of its large share of assets and liabilities in foreign currency.

Operating leverage ratio (net premiums written to equity) was 1.0x at September 2015 and remained similar than its average between 2010 and 2014. It stood below the Mexican insurance ratio of 1.9x at September 2015. This is consistent with Patria's solid capitalization which derives from the stringent Mexican insurance regulation, its conservative dividend policy and its risk-based capital approach. Fitch considers that Patria's risk management model is advanced, which has proved effective in monitoring and mitigating its risks.

Patria continues showing ample reserve coverage to net written premiums of 371% at September 2015, above the average of 238% registered between 2010 and 2014. Also, its catastrophic reserves cover 41.4x the priority under its catastrophic retrocession contract. This conservative approach is also evident in its good liquid assets coverages of 102% to adjusted technical reserves and of 84% to total liabilities at September 2015, comparing favorable with the market's ratios of 94% and 76% at that same date, respectively.

Patria has a small size relative to most of its reinsurer competitors, with total gross written premiums less than USD120 million. However, it has an important market position in Latin America, where it is considered to be of medium scale. Although most of Patria's primary business is still concentrated in Mexico, its reinsurance business is conducted in almost all market segments in Latin American countries, making it one of the region's most diversified reinsurers.

RATING SENSITIVITIES

Patria's ratings have limited upside potential in the short term given its relative small size in a market where large global players manage the largest share of the reinsurance market.

Operating leverage ratio above 1.5x and recurrent high operating catastrophic and financial losses that undermine Patria's profitability and equity base may trigger a negative rating action. Negative movements on Mexico's sovereign rating, while currently not likely, could trigger a review of Patria's rating given its high exposure to the sovereign.

FULL LIST OF RATING ACTIONS

Fitch has affirmed the following ratings with a Stable Outlook:

Reaseguradora Patria, S.A.

--International Insurer Financial Strength (IFS) rating at 'A-';

--National IFS rating at 'AAA(mex)'.

Additional information is available on www.fitchratings.com

Applicable Criteria

Insurance Rating Methodology (pub. 16 Sep 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=871172

Additional Disclosures

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https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=998674

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=998674

Endorsement Policy

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Fitch Ratings

Primary Analyst

Eugenia Martinez
Associate Director

+5281 8399 9155

Fitch Ratings Mexico

Prol. Alfonso Reyes 2612, Piso 8

Monterrey NL, 64920

or

Secondary Analyst

Eduardo Recinos
Senior Director

+503 2516-6606

or

Committee Chairperson

Julie Burke, CPA, CFA

Managing Director

+1-312-368-3158

or

Media Relations:

Elizabeth Fogerty, +1 212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings