Ratings Roundup: Sul America, Afianzadora

October 21, 2009

Standard & Poor’s Ratings Services has raised its ratings on Sul America S.A. (SASA), including raising the counterparty credit rating to ‘BB-‘ from ‘B+’ and the senior unsecured debt rating to the company’s remaining $130 million, five-year senior notes to ‘BB-‘ from ‘B+’. S&P said the “rating on SASA, a pure holding company, reflects a two-notch differentiation from the issuer rating on Sul America Companhia Nacional de Seguros, which we raised to ‘BB+’ from ‘BB’.” The outlook is stable. “The rating action reflects the solid financial performance of Sul America even under the less favorable economic and competitive conditions,” said credit analyst Ricardo Brito. “The upgrade is consistent with the buildup of a longer and more consistent track record of good margins in auto and health insurance, and the strengthening of the balance sheet.” However, S&P also noted that the rating on Sul America still “reflects the challenges the company faces in the competitive environment for insurance in Brazil after recent consolidations. Offsetting this weakness are the company’s consistent financial condition and well-established competitive position in the country’s health and auto insurance segments. Sul America has been posting better profits in the past few years and reducing its debt leverage as it benefits from good cash flow. An effective management strategy of focusing on profitability and brand recognition has helped the company achieve these results.”

A.M. Best Co. has affirmed the financial strength ratings of ‘A-‘ (Excellent) and issuer credit ratings of “a-” of Afianzadora Insurgentes, S.A. de C.V. (AISA) and Afianzadora Aserta, S.A. de C.V.(Aserta). The outlook for all of the ratings is stable. “These rating actions reflect AISA and Aserta’s solid risk-adjusted capitalization and significant market share of the Mexican surety insurance segment,” Best explained. “The ratings also recognize the companies’ affiliation as members of the only Mexican surety financial group, Grupo Financiero Aserta, S.A. de C.V. (Grupo Financiero Aserta).” Best also observed that AISA is one of the leading surety insurers in Mexico, and together with Aserta, the group is the largest bonding and surety writer. As a result of AISA’s affiliation with Aserta, management has implemented several initiatives including tighter underwriting controls and more efficient collection procedures in tandem with newly established risk selection guidelines. In addition, both AISA and Aserta continue to maintain more than adequate risk-adjusted capitalization for their current business profiles. Grupo Financiero Aserta is the first financial group comprised of only surety companies, and management’s intention is to write specific business segments in each company and optimize the group’s capital utilization.” Best added that “the companies’ overall earnings volatility in recent years, somewhat elevated expense structure and potential limited financial flexibility as a result of its private ownership structure,” should be considered as offsetting factors.

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