has affirmed RIMAC Seguros y Reaseguros' (Rimac) Insurer Financial Strength (IFS) rating at 'BBB' with Stable Rating Outlook.
According to Fitch, the rating action is based on RIMAC's 2019 figures, maintaining its strong business profile and financial performance with leverage indicators that solidly support the rating. The rating is constrained by the high exposure to sovereign securities and reinsurers.
"The rating action also considers Fitch's current assessment of the impact of the coronavirus pandemic, including its economic impact, under a set of ratings assumptions described below. These assumptions were used by Fitch to develop pro-forma financial metrics for RIMAC that Fitch compared with both ratings guidelines defined in its criteria, and relative to previously established Rating Sensitivities for RIMAC," it expressed.
Key rating drivers
The company's rating reflects the favorable business profile scored at 'BBB+'. This is based on its leadership position in the Peruvian insurance industry with 31% market share. The business profile assessment considers the favorable operating scale and brand strength that gives the company strong competitive advantage.
"The diversification and business risk profile are also seen as favorable with a wide breadth of product offerings in well-established business lines. However, Fitch's view of diversification and business risk is somewhat constrained by the high concentration in Peru's capital and the mining industry," it stated.
As of December 2019, RIMAC improved its operating performance with higher costs efficiency, reducing the combined ratio by 4.8%. The company's operational income is heavily influenced by other non-operating expenses related to Rimac EPS and its clinic, making it highly reliant on financial income. Despite its variable nature, financial profits have been a constant source of income and the company's 2019 investment yield of 5.9% was consistent with the five year average.
The technical results improvement along with stable financial income, boosted the ROAE and pre-tax ROAA to the highest level in the past five years, reaching 17.6% and 2.4%, respectively.
The increasing claims, slower economy and lower financial income due to the coronavirus are expected to be partly offset by lower auto claims. The pro forma analysis shows a modest but manageable impact on RIMAC's financial performance.
As of December 2019, RIMAC's reinsurance strategy remains unchanged. Fitch scores reinsurance, risk mitigation and catastrophe risk at 'bbb+' reflecting the 119% reinsurance recoverable ratio and the high quality reinsurance pool with a rating in the 'A' category or above.