[August 28, 2014]

Fitch Affirms Pacifico Peruano-Suiza's (Peru) IFS at 'BBB-'; Outlook Stable

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 ratings are supported by its ample business scope and strong business position in Peru's insurance industry, diversified premiums mix, adequate but volatile overall profitability and leverage ratios below the peer average. The ratings are constrained by its narrow geographic focus compared with global insurance peers and still limited operating margins in an industry that faces significant swings in terms of pricing.

Worth mentioning that since end 2012, quarterly results from PPS have shown less volatility in the operating results, which have paved the way to enhance its performance and leverage ratios.

PPS' Gross Written Premiums growth remains aligned to the non-life insurance industry growth ratios (15.0% PPS vs 15.1% as of December 2013). PPS' focus on non-life insurance business is well complemented by its subsidiaries in the life insurance segment (Pacifico Vida) and health care management (Pacifico EPS). Pacifico Insurance group, through its holding -- PPS --, has maintained a strong position in the highly competitive insurance industry, reaching an aggregate premiums market share of 24.9% as of March 2014 (life and non-life), while its non-life premiums market share remain solid (13.6%).

PPS's subsidiaries are core on Pacifico Insurance Group business strategy, reinforcing the group incomes flow diversification and PPS's financial flexibility through the ability of Pacifico Vida to distribute dividends. As part of Pacifico Insurance Group's expansion strategy into the health care business, PPS bought a number of healthcare entities (mainly private hospitals) between 2011 and 2012, which may start contributing positive operative results in 2015 when all the required investment and infrastructure improvements on those acquired assets are completed.

Even when PPS' operational performance faced a deterioration during 2010 to 2013, its main profitability ratios remained competitive, due to the strong net financial incomes deriving from the solid performance of its life insurance subsidiary. Since the second quarter of 2013, PPS' performance has reflected the favorable effect of the underwriting, pricing andexpenses corrective actions taken in previous year. As of March 2014, PPS has improved its operational ratio to 100.4% from a peak of 117% in March 2013, showing a favorable trend of its annualized profitability ratios (ROAA of 6.6% and ROAE of 16.5%).

PPS' leverage ratios slightly increased during 2013; however, remain below local and global peers. As of March 2014 its adjusted liabilities-to-equity ratio reached 1.22x and net earned premiums-to-equity ratio reached 0.48x. The outstanding subordinated debt of PEN 166.8 million at March 2014 (with no equity content under Fitch rating criteria) do not pressure its liability mix (24.8% total financial debt-to-equity) and its ability for cash flow. Nevertheless, the burden of PPS' 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 the senior management have improved its operational performance in the last quarters and will continue enhancing gradually in the short term.

Key rating triggers that may lead to an upgrade include sustainable improvement on PPS combined ratio under 100%, lower volatility in earnings, and better liquidity ratios over an extended period.

Key rating triggers that may lead to a downgrade include a decrease on its 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'

Applicable Criteria and Related Research

--'Insurance Rating Methodology' (November, 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=860794

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.

[ Back To TMCnet.com's Homepage ]