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Fitch Affirms Provincial de Reaseguros' IFS at 'CCC'
December 21, 2016 / 6:05 PM / 9 months ago

Fitch Affirms Provincial de Reaseguros' IFS at 'CCC'

(The following statement was released by the rating agency) CHICAGO, December 21 (Fitch) Fitch Ratings has affirmed Provincial de Reaseguros, C.A.'s (Pro Re) International Insurer Financial Strength (IFS) rating at 'CCC' and its National IFS rating at 'A-(ven)' with a Stable Outlook. The affirmation of the ratings reflects Pro Re's adequate technical performance with a combined ratio consistently below 100%, the robust growth in premiums collected, the increase in paid in capital and its adequate liquidity position. KEY RATING DRIVERS Fitch believes Pro Re's financial performance will remain highly influenced by its operating environment and vulnerable to political uncertainty in Venezuela. In Fitch's opinion, given that 99.9% of Pro Re's premium income comes from Venezuela and 6% of its assets are invested in sovereign debt, the company's credit profile is highly vulnerable to further deteriorations in the credit quality of the sovereign. Pro Re reached 150% growth in premiums as of June 2016 and 175% growth the previous year. This is mainly due to high growth on property and casualty insurance lines, in which sums insured are significantly influenced by the country's high inflation levels. This affects the sustained growth of the Venezuelan insurance sectors' premiums, 189% at June 2016 (99% at June 2015), which is Pro Re's main market. Pro Re's capital levels are pressured by the fast growth in its operations and unrealized gains due to real estate revaluations, which registered a proportion of 94% in June 2016 versus 65% in June 2015. By excluding these gains, the net written premiums to adjusted equity ratio grew to 8.8x from 4.6x June 2015. However, Fitch views positively Pro Re's increase of its paid in capital and its conservative dividend policy. Fitch expects Pro Re's profitability will continue to be determined by its capacity to maintain an adequate technical performance, given the low and volatile investment income, and the constant pressures from high inflation and new government regulations. Despite this, Pro Re's adequate loss ratio and controlled operating efficiency result in a favorable combined ratio below 100% (90.2% as of June 2016). Despite Pro Re's proportion of cash, bank deposits and government securities was reduced, both with respect to its investment portfolio (June 2016: 15%; June 2015: 54%) and to total assets (June 2016: 15%; June 2015: 47%), the company was still able to register adequate liquidity coverage ratios on reserves (1.2x) and total liabilities (1.0x). The coverage of Pro Re's claims paid with liquid assets remains favorable at 113% at June 2016. RATING SENSITIVITIES There is a limited potential for increasing Pro Re's rating on the short term, given the challenging operating environment. A downgrade could result from a decline in its operating performance, with a combined ratio above 100%, net written premiums to equity ratio above 3.0x or a liquid assets coverage-to-net reserves ratio below 1.0x FULL LIST OF RATING ACTIONS Fitch has taken the following rating actions: Provincial de Reaseguros, C.A. --International IFS rating at 'CCC'; --National IFS rating at 'A-(ven)'; Outlook Stable. Contact: Primary Analyst Brian Schneider Senior Director +1-312-606-2321 Fitch Ratings 70 W. Madison St. Chicago, IL 60602 Secondary Analyst Miguel Martinez Associate Director +503 2516-6628 Committee Chairperson Rodrigo Salas Senior Director +562 2 499-3309 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Insurance Rating Methodology (pub. 15 Sep 2016) here Metodología de Calificaciones Nacionales (pub. 13 Dec 2013) here Metodología de Calificación de Seguros (pub. 19 Oct 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1016872 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. 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