Ratings Recap: Cooperativa, Patria Re

June 1, 2010

A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a” of Puerto Rico based Cooperativa Seguros Group and its operating member, Cooperativa de Seguros Multiples de Puerto Rico (CSM). Best also revised the outlook to negative from stable and affirmed the FSR of ‘A-‘ (Excellent) and ICR of “a-” of Real Legacy Assurance Company, Inc. Best said the “ratings of Cooperativa are based on the consolidation of CSM and its wholly owned separately rated subsidiary, Real Legacy.” Best explained that the rating actions reflect the “emergence of adverse reserve development on recent accident years, the recent downturn in underwriting performance and the group’s geographic risk concentration as a property writer in Puerto Rico, the U.S. Virgin Islands (USVI) and Florida, which exposes results to frequent and potentially severe weather-related events.” In addition, Best pointed out that the “Puerto Rico insurance market remains very competitive, which contributes to the group’s elevated underwriting expense ratio partially due to high commission expenses. Additionally, Cooperativa’s planned growth initiatives could further impact operating performance given the current soft market conditions. The affirmation of the ratings recognize Cooperativa’s strong capitalization, significant market presence and brand recognition within Puerto Rico and historically solid operating performance.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Mexico’s Reaseguradora Patria, S.A.B. (Patria Re), both with stable outlooks. Best said the rating actions reflect “Patria Re’s favorable risk-adjusted capitalization, consistent underwriting performance in recent years and management’s local and regional market expertise. Patria Re is a reinsurer, mainly in the Mexican and Latin American markets and is focused on the prudent management of its underwriting risk in these regions.” The reinsurer’s “comprehensive domestic and regional knowledge and expertise,” has established Patria Re’s “strong niche position in Mexico and Latin America, which allows the company to selectively accept profitable businesses, while maintaining a diversified product portfolio tailored to specific markets. This strategy has resulted in favorable underwriting results in recent years, and Patria Re has been able to enhance its risk-adjusted capitalization.” However, Best cited Patria Re’s “limited financial flexibility, elevated expense structure, which is driven by acquisition costs associated with its portfolio mix, concentration of equity holdings in its investment portfolio and exposure to frequent and severe catastrophic losses,” as offsetting factors. Best also pointed out that Patria Re’s risk profile “has changed in recent years as a result of its exposure to European and Asian risks. While this affords Patria Re some additional geographic diversification in its operations, the company is accepting risk in relatively new markets. A.M. Best will continue to closely monitor Patria Re’s experience with these contracts for any adverse developments.”

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