NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an initial local currency Insurer Financial Strength (IFS) rating to Seguros Inbursa, S.A. (Inbursa) of 'BBB', with a Stable Outlook. Also, Fitch affirmed Inbursa's National Scale Insurer IFS rating at 'AAA(mex)', with a Stable Outlook.
Inbursa's ratings are supported by its conservative business model based on good underwriting policies, a well-managed reinsurance program, above-average reserve coverage aided by the stringent regulatory environment in Mexico, and adequate profitability. Also, Inbursa's ratings consider a below-average level of liquid assets, moderate capitalization, and a strong market share that allows the company to better manage its pricing process and dilute its operating costs.
Inbursa's financial performance and IFS rating should benefit from a more diversified and fragmented premium portfolio, and less dependent on large industrial policies, coupled with an improved liquidity and a stronger capital base. A downgrade of Inbursa's ratings would be driven by a significant deterioration of its operating ratio and capitalization levels.
Inbursa's adequate reinsurance program allows the company to achieve greater premium retention levels, cost dilution, and ample technical reserves coverage, while maintaining a low level of equity exposure to claims severity. Inbursa protects its property and casualty (P&C) and automobile business branches, which together represent 71% of its total net premiums, with working cover excess loss contracts.
The company's probable maximum loss per risk in the P&C branches is a low 0.7% of equity. The company has also acquired extensive reinsurance coverage to cover earthquake and hydroelectric risks, where the probable maximum loss remains at a low 0.6% of equity, meaning an exposure level well below the average of insurers rated by Fitch in Latin America, and by also having an ample catastrophic reserves base.
Inbursa's reserve coverage ratio is considered strong and has been above 250% in the last years (269% as of retained premiums in March 2011), given its relatively high premium retention levels (70.6% to March 2011) and conservative reserving policy. This retention level is largely influenced by the use of non-proportional reinsurance in the P&C and car business lines, given the rigorous reserves requirements established by the Mexican insurance regulation, which is based on actuarial methods.
Inbursa's technical results have been historically influenced by the underwritten of a large policy, which translates into higher efficiency levels and allows the company to compensate other less favorable factors of its operating result structure, such as the high loss ratio (in the range of 70%-75% in the last three years). This allows the company to register lower combined ratios, although consistently remaining above 100%.
The ample capital and reserves level provides a broad base of resources available for investment, generating significant net financial income (31.2% of premiums earned as of March 2011) and allowing the company to register an operating ratio (combined ratio minus net financial contribution) of 71.3%. In Fitch's opinion, net financial income is and will remain a strong contributor to the company's profitability, posting net income as of March 2011 that represents 4.4% of average assets.
The company has historically registered a liquid asset to reserves ratio of around 0.7 times (x) over the past two years, mainly due to the high level of reinsurance accounts receivable outstanding balances, largely generated by the main industrial account of the company (Pemex).
Applicable Criteria and Related Research:
-- 'Insurance Rating Methodology - Global Master Criteria', dated September 22 2011.
Applicable Criteria and Related Research:
Insurance Rating Methodology
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