Fitch Affirms Rimac at ‘BBB’; Outlook Stable

RIO DE JANEIRO & NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the Insurer Financial Strength (IFS) rating of Rimac Seguros y Reaseguros (Rimac) at 'BBB'. The rating Outlook is Stable.

KEY RATING DRIVERS

The affirmation of Rimac's rating takes into consideration the long financial track record of adequate and stable profitability, and its strong market position within the Peruvian insurance industry. Key credit factors remain consistent with previous periods. Fitch does not foresee any material changes in Rimac's profitability, leverage and market position in the short and medium term.

Rimac remains the largest company in the Peruvian insurance industry, with a solid market share of 27% of assets and 30% of gross written premiums as of June 2016. This is led by its strong leadership in property and casualty (P&C) segments where it has 33% of total retained premiums of the market, and in health and accident segments with 32%.

In the last period (June 2016 - June 2015) gross written premium growth was negative -4.4%, driven by a decline in premiums for fire by -23% and annuities by -17%. The decrease in annuities premiums was the result of regulatory changes that now allows annuity holders to withdraw up to 95.5% of the saved amount for retirement, which negatively affected the Peruvian annuities-insurance market. In Fitch's opinion, the decrease in annuities premiums should stabilize in the short term; however, previous annuities premiums volume will not be recovered.

In June 2016, Rimac's leverage remained stable registering a liabilities to equity ratio of 5.5x, aligned with its historical range between 4x and 6x and below the leverage of its annuities peers (7.5x). Rimac's leverage is consistent with its premium's breakdown, uniformly balanced between short- and long-term products.

Rimac's net income was an adequate PEN103 million in June 2016. Although this was 10% lower than the previous period, the company maintained profitability ratios of net income over average equity and assets of 14.7% and 1.9%, respectively, comparatively competitive to other Peruvian companies and other insurers in Latin America.

Net loss ratio remains steady at 54%, reflecting adequate underwriting and pricing parameters. In terms of P&C branches, loss ratio was reduced to 39% from 42%, especially in the field of compulsory auto-accidents-insurance. In Fitch's view, in the short term, Rimac's loss ratio will remain under 60%, aligned to its historical averages.

As of June 2016, combined ratio reached 105.7% and an operational ratio at 91.6%, reflecting the importance of financial income for Rimac's net income, and also for the Peruvian insurance industry as a whole. Investment profitability decreased to 5.1% partly mirroring lower profitability in the local financial and international markets. Fitch expects profitability levels of investment remain tighter than previous periods.

In June 2016, Rimac's liquidity measured by liquid assets over current liabilities was 0.96x, in line with other annuities companies. Rimac's assets are comprised mainly of investments in local and foreign fixed income securities of adequate credit risk.

Rimac's reinsurance coverage, is structured under a wide pool of reinsurers, focused in covering mainly property & casualty (P&C) lines. In June 2016, P&C ceded premium was 48% of total premiums while health, accidents and life registered a retention close to 100%, except disability and survival insurance where Rimac cedes around 90%. As of June 2016, Rimac's maximum catastrophic exposure was equivalent to 2.4% of its equity, already backed by reserves and PML (probable maximum loss) exposure remains adequate covered by reinsurance.

RATING SENSITIVITIES

Positive Rating Action: Sustained improvement of its main performance ratios, especially an operating ratio consistently below 85%, while leverage ratio falls below 5.0x, may lead to an upgrade.

Negative Rating Action: Factors that may lead to a downgrade include a sustained leverage above 8.0x, higher credit-risk investment profile or a long deterioration of main underwriting performance, mainly in the non-life segment.

Additional information is available on www.fitchratings.com

Applicable Criteria

Insurance Rating Methodology (pub. 15 Sep 2016)

https://www.fitchratings.com/site/re/887191

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