AM Best has assigned the Long-Term Issuer Credit Rating (Long-Term ICR) of "bb+" to Austral Participações S.A. (Austral). The outlook assigned to this Credit Rating is positive. Concurrently, AM Best has affirmed the FSR of B++ (Good) and the Long-Term ICR of "bbb+" of Austral Resseguradora S.A. (Austral Re) and Austral Seguradora S.A. The outlook of these Credit Ratings (ratings) is positive. All companies are domiciled in Brazil, and collectively are referred to as Austral Participacoes S.A. (Austral).
The ratings reflect Austral’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 positive outlooks are underpinned by AM Best’s expectation that Austral’s balance sheet strength will remain at the very strong level, supported by strong internal capital generation, the recent reduction of its catastrophe exposures and expected improvement in operating performance, as exposure to certain lines of business was significantly reduced. Austral Re recently acquired Terra Brasis Resseguros, which, combined with the uncertainty from the COVID-19 pandemic and international catastrophe and climate-related agricultural business exposure, generated volatility for Austral’s operations in the last two years. Due to that, balance sheet strength was assessed as very strong, despite the fact that its risk-adjusted capitalization, as measured by the Best’s Capital Adequacy Ratio (BCAR), scored at the strongest level. Additionally, Austral maintains a retrocession program with highly rated counterparties as it remains dependent on reinsurance to provide additional market capacity. On the investment portfolio, AM Best expects that the record-low interest rate environment in Brazil will reduce the contribution of Austral’s investment income to its operating results, compared with recent years, leading surplus growth to be more dependent on the underwriting activity.
AM Best sees Austral’s business profile as neutral; however, Austral Re’s acquisition of Terra Brasis Resseguros helped create a more diversified book of business and better geographic spread of risk. Austral continues to grow amid significant uncertainty brought by the pandemic, while building its presence in the wider Latin America (re)insurance market, predominantly writing energy, surety and financial guarantee, commercial property and casualty, marine, aviation and transportation, life and agriculture (re)insurance lines of business.
Partially offsetting these positive rating factors is Brazil’s highly competitive (re)insurance market as homegrown and global (re)insurers continue to compete for market share. In addition, Austral also must weather the still significant macroeconomic challenges, which are somewhat more challenging in Brazil, compared with recent years, over the short and medium term.
Positive rating actions could follow if Austral improves its risk-adjusted capitalization and long-term underwriting performance, given the changes in its book of business. Negative rating actions could occur if the group’s operating performance does not stabilize after the recent transaction or decays compared with the projections presented to AM Best. Negative rating actions may also occur if risk-adjusted capitalization experiences an adverse impact from the recent portfolio changes or other issues.
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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Guilherme Monteiro Simoes
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