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
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
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.
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
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