NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the local currency Insurer Financial Strength (IFS) rating of Pacifico Peruano-Suiza Compania de Seguros y Reaseguros (PPS) at 'BBB-'.
The Rating Outlook is Stable.
KEY RATING DRIVERS
PPS's rating affirmation is driven by its stable leverage, adequate, albeit volatile, profitability and solid market share in the markets it operates. PPS's current ratings also underpins the challenges imposed by fierce local competition on its operating performance, the burden of non-liquid assets on its balance sheet, and its relatively narrow geographic focus compared to global peers and characteristic of domestic insurance companies.
As the second largest insurance company in Peru (26% market share in term of premiums) PPS enjoys a solid franchise and good pricing power in the markets it operates. PPS participates in all insurance business segments directly or through its subsidiaries on the life insurance segment (Pacifico Vida) and health care industry (Pacifico EPS). Under Fitch's rating criteria, both subsidiaries are considered 'core' to PPS given their constant and sizable earnings contribution, cross selling benefits, commercial and franchise integration. Recent acquisitions by the health care business may bode well to enhance the earnings generation of Pacifico EPS and also aid claim control initiatives.
PPS's profitability ratio remains competitive and in range with regional peers, but despite this, the ratio remains relatively volatile and highly dependent on financial income. PPS's combined ratio in 2012 increased to 106% due to a larger claim. The ratio was pressured by the auto segment and the fierce price competition in that segment and some large claims on property and technical lines. The company's recent strategy for claims control in the auto segment and better pricing in an environment of fierce competition should bode well in terms of its combined ratio during 2013.
PPS's leverage ratios remain stable (liabilities-to-equity ratio of 0.98x and net-earned-premiums-to-equity of 0,7x at Dec.12). The outstanding subordinated debt of PEN152 million at Dec.12 (with no equity content under Fitch rating criteria) does not pressure its liability mix (15.3% financial debt-to-equity) and its ability for cash generation. Nevertheless, the burden of PPS's investments in subsidiaries still undermines the flexibility of its capital base in stress periods, considering that equity participations have limited liquidity and are subject to capital rules given their insurance operating business.
RATING SENSITIVITIES
The Stable Outlook reflects Fitch's perception that the corrective measures taken by senior management should improve operational performance in the short term. Fitch does not expect a dramatic slowdown of PPS's profitability ratios.
Key rating triggers that may lead to an upgrade include:
sustained improvement of PPS's combined ratio, lower volatility in earnings, and better liquidity ratios over an extended period could favourably affect the rating.
Key rating triggers that may lead to a downgrade include: a decrease of the company's overall profitability with an ROAA below 1% and/or a substantial increase of its leverage ratios (financial debt above 20% and operating leverage above 2x.)
Additional information is available at 'www.fitchratings.com' . The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research
--'Insurance Rating Methodology' (Jan. 11, 2013).
Applicable Criteria and Related Research
Insurance Rating Methodology -- Amended
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=698731
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