AM Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of "bbb" of Reunion Re Compañia de Reaseguros S.A. (Reunion Re) (Argentina). The outlooks of these Credit Ratings (ratings) have been revised to negative from stable.
The ratings reflect Reunion Re’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
The revision of the outlooks to negative from stable reflects pressure on Reunion Re’s balance sheet driven by a more challenging macroeconomic environment in Argentina and volatility in reinsurance recoverables.
Reunion Re’s balance sheet strength is underpinned by its risk-adjusted capitalization being at the very strong level, as measured by Best´s Capital Adequacy Ratio (BCAR). The ratings also reflect the company’s consistent profitability despite a volatile economic environment. Other positive rating factors include a well-structured and diversified reinsurance program, the company’s seasoned management team and synergies provided by its main shareholder. Partially offsetting these positive rating factors is the volatility in Reunion Re’s bottom-line results derived from operating in an economy with high inflation and currency volatility, exposure to capital controls, public debt restructuring and uncertainty from the COVID-19 global pandemic.
Reunion Re initiated operations in Buenos Aires, Argentina in 2012 and ranks among the country’s top reinsurance companies in terms of premium market share. The company operates through a network of brokers and direct distribution channels in Argentina, Paraguay, Guatemala, Bolivia and Ecuador.
Reunion Re’s risk-adjusted capitalization has been maintained at the very strong level and is supportive of its ratings. Historically, the company has increased capital at a 60% compound annual growth rate supported by positive bottom-line results, driven by a consistent inflow of underwriting and investment income, which reflects the management team’s market knowledge and well-rounded experience in Argentina. A well-balanced reinsurance program placed among counterparties with a strong credit level also reinforces the company’s risk-adjusted capitalization and diminishes its credit risk exposure. In AM Best´s view, current capital levels could become pressured if the credit quality of Reunion Re’s investment portfolio further deteriorates given the prevailing macroeconomic uncertainty in Argentina. In addition, spikes in the volume of reinsurance recoverables have also pressured capital adequacy, which supports the current ratings.
In AM Best’s view, the reinsurer has shown disciplined underwriting in a highly volatile market that is driven by inflation and foreign exchange rate pressures. Reunion Re has managed to maintain overall profitability despite the negative effects derived from historic non-recurring adjustments in premium reporting, capital controls and public debt restructuring. By year-end 2020, the company sustained a return-on-equity of 7.3%, driven by contained underwriting expenses in conjunction with consistent investment results, supported by the company’s highly dollarized investment strategy.
Factors that could lead to negative rating actions include a deterioration of Reunion Re’s risk-adjusted capitalization to levels no longer supportive of its ratings in light of current macroeconomic risks, which in AM Best’s view could pressure Reunion Re’s balance sheet strength. Positive rating factors could result from improvements in Argentina’s country risk profile in combination with an enhancement in Reunion Re’s risk-adjusted capital.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
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