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TMCNet:  Fitch Affirms El Pacifico Vida's (Peru) IFS at 'BBB'; Outlook Stable

[August 28, 2014]

Fitch Affirms El Pacifico Vida's (Peru) IFS at 'BBB'; Outlook Stable

SANTIAGO, Chile --(Business Wire)--

Fitch Ratings has affirmed the local currency Insurer Financial Strength (IFS) rating of El Pacifico Vida Compania de Seguros y Reaseguros (Pacifico Vida) at 'BBB'.

The Rating Outlook is Stable.

KEY RATING DRIVERS

Pacifico Vida's rating continues to reflect its strong position in Peru's life insurance industry and diversified premium mix, competitive profitability ratios supported by an adequate underwriting profile and financial management, as well as moderate credit risk and volatile exposure of its investment portfolio. This is partially offset by its geographical concentration in Peru given its focus on its home market and its relatively higher leverage ratio.

Pacifico Vida's insurance premium mix remains focused in the life segment; but it is worth mention that the company also leverages its offerings in Peru with its main shareholder: Pacifico Peruano-Suiza (PPS), a diversified P&C and health insurance company. Pacifico Vida's market share remains solid; however, it is subject to some volatility due to the weighting of the portfolio of premiums toward the private pension system, which has been subject to public bid offerings since 2013. During 2014, Pacifico Vida was not allotted any business by such a bidding process. As of March 2104 its gross written premiums market share reached 11.3%, while PPS' consolidated insurance market share remains relatively stable in a highly concentrated market, reaching 24.9%. Pacifico Vida's market position must be seen as a part of the Pacifico Seguros group, and Grupo Credicorp, owner of the largest commercial bank in Peru: Banco de Credito del Peru, which enables the company to access a greater portion of the market.

Pacifico Vida's profitability remains strong and is underpinned both by its good operating performance and the good yield of its large investment portfolio. As such, Pacifico Vida was able to exceed the market average of the last four years, reaching a return on average assets ratio (ROAA) of 4.1% and a return on average equity (ROAE) of 30.4% as of December 2013. Both ratios were affected by the lower business volume during the first quarter of 2014, but still remain above the market average (annualized ROAA of 3.4% and ROAE of 26.8%).

As were other insurers in Peru, affected by the volatility of the interest rates due to the expectations over he Fed tapering and the volatility of local interest rates, unrealized losses hindered Pacifico Vida's equity base during 2013, resulting in an increase in its leverage ratios. As of March 2014, adjusted liabilities-to-equity reached 7.11x (2012: 7.03x). Fitch believes that Pacifico Vida has financial flexibility to enhance its capital adequacy through net income retention, and would be able to revert its adjusted liabilities-to-equity ratio below 7x very soon.


Pacifico Vida's investment portfolio shows adequate liquidity and coverage levels in terms of liability duration and currency mismatch. The portfolio also carries limited credit risk with its allocation to Peruvian sovereign debt (Fitch IDR of 'BBB+'), international investment grade securities and well-regarded domestic fixed-income securities.

RATING SENSITIVITIES

The Stable Outlook reflects Fitch's view that intense competition in the domestic insurance market would not have a material impact on the company profile or on profitability in the medium term.

Key rating triggers that may lead to an upgrade include a sustainable improvement in company leverage ratios to below 5x, low volatility in earnings, especially considering the effect of financial incomes on the bottom line. In addition, a better credit risk profile over an extended period could favorably affect the rating.

Key rating triggers that may lead to a downgrade include recurrent volatility in earnings and profitability for an extended period, increasing leverage ratios over 7x, and a deterioration in its credit risk profile of its investment portfolio.

Additional information is available at 'www.fitchratings.com'

Applicable Criteria and Related Research

--'Insurance Rating Methodology' (Nov. 13, 2013).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723072

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=860795

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE '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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.


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