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TMCNet:  Fitch Affirms Rimac's (Peru) IFS Rating at 'BBB'; Outlook Stable

[August 28, 2014]

Fitch Affirms Rimac's (Peru) IFS Rating at 'BBB'; Outlook Stable

NEW YORK --(Business Wire)--

Fitch Ratings has affirmed Rimac Seguros y Reaseguros S.A.'s (Rimac) Insurer Financial Strength (IFS) ratings at 'BBB'.

The Rating Outlook is Stable.

KEY RATING DRIVERS

Rimac's rating reflects the company's leading position in Peru's insurance market, well diversified business mix, which also includes health care management business, with adequate profitability and cash flow ability, despite Peru's intense competition. Its ratings are limited by their narrow geographical scope compared to global players and its increased leverage level, which compares above the median of similarly-rated companies; although those may start to come back to its normal levels in the short and medium term.

Rimac's gross written premiums keep growing similar to industry trends allowing the insurer to preserve their leadership in the local market. Competition remains fierce in the highly concentrated insurance market in Peru. Rimac's leading position is also shared by its subsidiary dedicated to provide protection and services on the health care market; which enhance the overall competitive position and product offer of Rimac. Rimac's market share remains on stable, reached 33.8% of total insurance premiums as of March 2104 and Rimac EPS (health care subsidiary) has reached 45.1% share on its respective business line. Despite being neutral to Rimac's ratings, Fitch view positively the relation of the bank with its controlling shareholder: the Brescia group, which manages diverse interests along the Peruvian economic activity and the second largest commercial bank in the country; which expand synergies and cross selling opportunities.

Rimac's profitability remains relative volatile compared to its peers due the fierce market competition and some temporary spikes on its claim ratio due the expansion in some markets and the soft prices environment. During 2013, the insurer was able to revert the negative trend on its profitability underpinned by a stronger combined ratio and enhanced prices. Rimac's annualized return-on-average assets ratio reached 2.3% and return-on-average equity reaching 15%, which favorably compared with 2013 fiscal year end ratios (1.9% and 11.1% respectively). Combined and operative ratios also performed well during the first quarter of 2014, reaching 104.3% and 91.7% respectively. Fitch believes that the favorable trend of profitability and operating performance will continue at least for the short term, however, price cycles remains a threat in Peru.

Rimac's asset under management stock (derived from its strong footprint on the annuities and provisional business) continues growing strong and is consistently aligned to the reserves constitution trend, mainly driven by previsional segment. As of March 2014, the financial investment portfolio reached PEN5,508 million, representing 65.3% of total assets and 90.4% of technical eserves. The company's investment portfolio is considered adequate in terms of its average credit quality, tenors and currency aligned with the profile of its technical reserves, managing an adequate assets/liability management. Rimac follows a conservative investment approach, mainly concentrated in fixed income securities mostly between the 'BBB/A' range, with limited exposures to complex and/or variable income securities.


Reinsurance coverage remains solid and stable, limiting entity risks and equity exposure including a reputable international reinsurer's pool and limited counterparty risk, mostly rated above 'BBB-'. Reinsurance protection incorporating proportional quota share and non-proportional XL and Catastrophic policies, which are defined by each business line requirement, with higher cession levels for the non-life insurance lines. Fitch considers adequate Rimac's maximum equity exposure to a catastrophic event.

Rimac's leverage position was temporarily affected in 2013 due unrealized losses on its investment portfolio and the current cash dividend policy; both issues resulted in a 9% reduction on Rimac's equity base as of end 2013. As of March 2014 this situation has persisted, reaching an adjusted liabilities-to-equity ratio of 5.4x, slightly above the 5.2x ratio reached as of December 2013, but above 2009-2012 average-leverage ratio of 3.8x. Fitch base case scenario calls for a reduction on such ratio due improved earnings, expecting that the adjusted leverage ratio will come down below 4x during 2014. It's worth mentioning that current leverage ratios are not affected by increasing financial debt, which is not existent, but rather by the increase on the assets under management from the annuities and provisional business.

RATING SENSITIVITIES

The current Stable Outlook is driven by Fitch expectations about Rimac's financial performance, which will continue to improve in the next quarters, taking up historic average operating ratios below 90% and return on average equity in the 15% range; which will help to reduce its net leverage ratio below 4x.

Key rating triggers that may lead to an upgrade include: a sustained improvement of its main performance ratios, especially an operating ratio consistently below 85%; while its leverage ratio falls below 3.0x.

Key rating triggers that may lead to a downgrade include: deterioration on its profitability and operating performance, reaching a return-to-average assets ratio below 1% and/or an operating ratio above 95%, a recurrent leverage ratio beyond 5x or a deterioration in the 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=860814

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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