OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has downgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to “ccc” (Weak) from “ccc+” (Weak) and affirmed the Financial Strength Rating (FSR) of C (Weak) of Cooperativa de Seguros de Vida de Puerto Rico (COSVI) (San Juan, Puerto Rico). The outlook of the FSR has been revised to negative from stable while the outlook of the Long-Term ICR is negative.
The Credit Ratings (ratings) reflect COSVI’s balance sheet strength, which AM Best assesses as very weak, as well as its adequate operating performance, limited business profile and weak enterprise risk management (ERM).
COSVI’s absolute capital level declined materially in 2021 due to a decrease in the discount rate used to determine the unfunded pension obligations in the defined benefit pension plan. As a result, the company’s risk-adjusted capital, as measured by Best’s Capital Adequacy Ratio (BCAR), also declined and continues to be assessed at very weak. COSVI’s board of directors recently approved a capital management plan to improve absolute capital and risk-adjusted capital strategically. However, the negative outlooks reflect AM Best’s concern for additional pressure that may impact risk-adjusted capitalization given the history of one-off events. Volatility in COSVI’s BCAR has been high historically. Unadjusted financial leverage remains just within AM Best’s tolerances, and quality of capital remains neutral to the ratings. AM Best notes that COSVI will need to demonstrate execution of its capital management plan before the balance sheet strength assessment will be viewed differently.
Offsetting forward-looking factors are the development of a capital management plan, and an overall strategic plan to improve the company’s risk-adjusted capitalization. COSVI also is working with a third party to strengthen the company’s overarching ERM framework and capabilities. AM Best will continue to monitor progress on all initiatives presented.
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