Fitch Ratings has affirmed Pacifico Compañia de Seguros y Reaseguros S.A.'s (Pacifico) Insurer Financial Strength (IFS) at 'BBB+'. The outlook is stable.
The rating action considered the company's strong business profile, its favorable financial performance, and capitalization and leverage ratios aligned to Fitch guidelines for the current rating.
The rating also considers the insurance industry profile and operating environment (IPOE) in Peru, which has been strengthened by the implementation of international standards, but remains less sophisticated and developed than other markets in the region.
Key rating drivers
The evaluation of Pacifico's business profile remains within the most favorable range. This is supported by the size of its operation and the maintenance of a leadership position in the Peruvian industry, which has allowed it to maintain solid competitive advantages.
Fitch views the diversification of its business and the limited risk profile of its products favorably.
The company's competitive position also considers the modest geographic diversification with all business originated in Peru, with a higher concentration in Lima, Peru's capital city.
Despite the increase in reserves related to coronavirus pandemic in 2020, the debt and capitalization indicators remained strong and are favorable for the assigned rating. In 2020, the operating leverage ratio increased modestly to 0.5x.
The financial leverage ratio increased to 13.9% as a result of a new bond issue to finance growth projections. Overall, leverage indicators, while higher than the average of the past three years, are within rating expectations.
Fitch notes that Pacifico's financial performance indicators deteriorated somewhat in 2020 but remained within rating expectations.
The higher loss ratio in the traditional life insurance lines affected both operational indicators (operating ratio 78.5%) and net profitability (ROE 10.9%). The financial result was consistent with 2019.
Fitch expects financial performance to remain suppressed in 2021 as coronavirus continues to be a challenge in Peru.