AM Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of "bbb" of Reunion Re Compañia de Reaseguros S.A. (Reunion Re) (Argentina). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Reunion Re’s balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
Reunion Re’s balance sheet strength is underpinned by its risk-adjusted capitalization being at the very strong level, as measured by Best´s Capital Adequacy Ratio (BCAR). The ratings also reflect the company’s sound underwriting practices and investment strategy supporting consistent profitability despite a volatile economic environment. Other positive rating factors include a well-structured reinsurance program, the company’s seasoned management team and synergies provided by its main shareholder. Partially offsetting these positive rating factors is the volatility in Reunion Re’s bottom line results derived from operating in an economy with high inflation and currency devaluation. These negative effects could be exacerbated by the country’s current economic environment characterized by capital controls and public debt restructuring in addition to adverse developments from the COVID-19 global pandemic.
Reunion Re initiated operations in Bueno Aires, Argentina in 2012 and ranks among the country’s top reinsurance companies in terms of premium market share. The company operates through a network of brokers and direct distribution channels in several cities throughout Argentina and Paraguay.
Reunion Re’s risk-adjusted capitalization has been maintained at the very strong level and is supportive of its ratings. Historically, the company has increased capital at a 47% compound annual growth rate supported by positive bottom-line results, driven by a consistent inflow of underwriting and investment income, which reflects the management team’s market knowledge and well-rounded experience in Argentina. A well-balanced reinsurance program placed among counterparties with a strong credit level also reinforces the company’s risk-adjusted capitalization and diminishes credit risk exposure.
In AM Best’s view, the reinsurer has shown disciplined underwriting in a highly volatile market that is driven by inflation and foreign exchange rate pressures. Reunion Re has managed to maintain overall profitability despite the negative effects derived from historic non-recurring adjustments in premium reporting, capital controls implemented in 2019 and Argentina´s public debt restructuring. By year-end 2019, the company sustained a return on equity of 17.5% and a 2.6% return on assets, which were driven by contained acquisition expenses in conjunction with consistent investment results supported by the company’s highly dollarized investment strategy.
Positive factors that might improve the rating level or outlooks include improvements in Argentina’s country risk profile in combination with a stable upward trend in Reunion Re’s profitability, while maintaining supportive risk-adjusted capitalization. Factors that could lead to negative rating actions include protracted adverse underwriting performance that leads to a significant deterioration in its risk-adjusted capitalization, and current macroeconomic risks that could affect AM Best’s view of Reunion Re’s balance sheet strength and consequently result in a downgrade of the company’s ratings.
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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