Fitch Ratings has affirmed Reaseguradora Patria S.A.'s (Patria)
International Insurer Financial Strength rating (IFS) at 'A-', Stable
Outlook, and its National Scale IFS rating at 'AAA(mex)', Stable Outlook.
KEY RATING DRIVERS
Patria's ratings are supported by its leading position in target
markets, strong capitalization, and consistently good operating
performance. Fitch also views as positive the company's favorable
qualitative factors such as corporate governance, management's
expertise, and the company's broad product and market strategy.
Patria's average operating leverage of 1.0x over the last five years is
conservative. This is a result of stringent Mexican insurance
regulation, the company's conservative dividend policy, and risk-based
capital approach. Patria's risk management model is advanced and has
proven to be effective in monitoring and mitigating the company's risks
Patria's ratings also consider its sustained improvement in operating
performance in the last five years, thanks to its more balanced market
and business line profile. Fitch expects this further diversification to
have a favorable impact on the company's risk profile. Through the first
nine months of 2013, Patria's combined ratio was 84.8%, down from 88.7%
in the previous year's period, benefitting from an improved net loss
The company's net financial income has been affected in the last year by
the negative trend in the market value of investment portfolios, which
in the particular case of Patria resulted in a loss of MXP7.7 million
(USD0.6 million) as of September 2013, mainly driven by its position in
government bonds (56% of total portfolio). The company's net income was
a loss of MXP12.2 million (USD0.9 million) for the same period.
Fitch expects that Patria's underwriting profits in the fourth quarter
will overcome the financial losses for the first nine months.
Additionally, the company'smanagement has decided to increase its
position in short-term securities as its current position in bonds
reaches maturity, in order to lessen the impact of interest rate changes.
Recurrent and higher losses from investments or high catastrophic losses
that undermine Patria's profitability and its equity base may trigger a
negative rating action for the company. Also, and even though not a
likely scenario at the moment, negative movements on Mexico's sovereign
rating may trigger a review of Patria's rating, given its high exposure
to sovereign debt.
Patria's ratings have limited upside potential in the short term given
its smaller relative size in the global reinsurance market.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
-- 'Insurance Rating Methodology - Global Master Criteria', November 13,
Insurance Rating Methodology -- Amended
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