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.
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
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