MEXICO CITY--(BUSINESS WIRE)--AM Best has revised the outlooks to stable from negative and affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb” (Good) of Mercantil Reaseguradora Internacional, S.A. (Mercantil Re) (Panama).
The Credit Ratings (ratings) reflect Mercantil Re’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).
The stable outlooks reflect Mercantil Re’s capacity to maintain profitable metrics that strengthen and protect its capital base.
Mercantil Re is the wholly owned reinsurer of Mercantil Seguros y Reaseguros, S.A., part of the Mercantil group’s international companies controlled by the ultimate parent, Mercantil Servicios Financieros Internacional, S.A., which provides synergies and operating efficiencies. The company’s main purpose is supporting the group’s regional expansion throughout Latin America.
Mercantil Re’s balance sheet strength is underpinned by its strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), and is supported by a well-structured reinsurance program placed with highly rated retrocessionaries, as well as a conservative investment strategy aimed at providing liquidity and maintaining appropriate asset-liability management. Additionally, the company’s ERM framework is considered appropriate, as it benefits from the group’s guidelines and expertise.
Mercantil Re’s operating performance is assessed as adequate; as it has remained profitable since 2020, through both positive technical results and investment income. The company’s combined ratio stands at 81%, as of December 2023, following a three-year string of premium sufficiency. AM Best expects the company to maintain a profitable operating performance, based on its management’s track record in underwriting practices, a diversified reinsurance structure and new business origination.
Factors that could lead to negative rating actions include the deterioration of either sources of revenue of the group, or financial leverage at the ultimate parent, which hinders the group's ability to service its debts, putting pressure on the financial strength of the insurance entities. Other factors, such as adverse underwriting performance, which leads to a significant deterioration in Mercantil Re’s risk-adjusted capitalization, could drive negative rating actions. While highly unlikely in the short to medium term, factors that could result in positive rating actions include improvements in the credit profile of the group, as a result of sustained profitability that strengthens its capital base and maintains consolidated risk-adjusted capitalization at the strongest level.
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