MEXICO CITY–(BUSINESS WIRE)–AM Best has assigned a Financial Strength Rating of B++ (Good) and a Long-Term Issuer Credit Rating of “bbb” to Aseguradora General, S.A. (AGen) (Guatemala). The outlook assigned to these Credit Ratings (ratings) is stable.
The ratings reflect AGen’s balance sheet strength, which AM Best categorizes as very strong, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management.
The stable outlooks reflect the capacity of the company’s capital base to support its desired risk exposures.
AGen was established in 1967 and is the third largest insurer operating in Guatemala. As of year-end 2019, the company reported USD 86 million in direct premium with a market share of 9%. The company underwrites a mixed portfolio of life and non-life business, with its retention distributed among major medical expenses (64%), auto (18%), group life (8%), diverse property/casualty offerings (7%) and universal life (3%). The business profile of the company is neutral supported by its importance in its domestic market, but limited by its geographic and product concentration.
The company’s majority shareholder is Luensi, S.A. (Luensi) (Guatemala), a pure holding company with investments in insurance, real estate and banking. Assicurazioni Generali S.p.A. previously owned AGen, but in May 2017, Luensi and a group of investors bought its 51% stake. As of December 2019, Guatemala ranked as the third-largest insurance market in Central America at USD 931 million, expanding in real terms at a 3.6% rate with good growth prospects for Guatemala’s economy.
AGen’s balance sheet strength is considered very strong, despite having the strongest level risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). The holding company places negative pressure on AGen’s balance sheet strength by limiting its capital growth due to substantial dividend payments to Luensi. Supporting the capital base is the well-structured reinsurance program that properly limits the exposure of its capital base to catastrophic events. AGen’s ERM practices are considered appropriate as its management capabilities are sufficient to meet its risk appetite.
AM Best considers the company’s operating performance as marginal, given that technical performance, as measured by its combined ratios, historically has presented premium insufficiency. In past years, investment income had been able to compensate for such performance. However, investment income fell short for 2019, rendering operating ratios above 100%. Nevertheless, net income has remained positive for the last five years, strongly supported by revenue coming from deferred premium and premium issuance rights mainly from the major medical expenses offerings of the company.
Positive rating actions could take place if the influence of the holding company is revised to neutral in AM Best’s view, derived from lower financial leverage and dependence on AGen’s dividends to meet its financial obligations. Additionally, positive rating actions could take place if the company is able to report better underwriting ratios consistently, derived from adjustments in its accidents and health offerings. Negative rating actions could take place if operating performance keeps deteriorating due to larger claims or a lower capacity to generate financial income. Additionally, further financial leverage at the holding company could also continue to pressure the ratings if interest coverage tightens or if leverage increases.
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