AM Best Confirms Instituto Nacional de Seguros Credit Ratings
MEXICO–(BUSINESS WIRE)–AM Best confirmed the financial strength rating of A (Excellent) and the issuer’s long-term credit rating of “a” (Excellent) from the Instituto Nacional de Seguros (INS) (San Jose, Costa Rica). The outlook for these Credit Ratings (ratings) is stable.
The ratings reflect INS’s balance sheet strength, which AM Best rates as the strongest, as well as its strong operational performance, neutral business profile and appropriate enterprise risk management (ERM).
INS’s risk-adjusted capitalization remains at the highest level, as measured by Best’s capital adequacy ratio (BCAR), and is supported by a comprehensive and adequate reinsurance program, strong operational performance and its position as the leading insurer in Costa Rica. The assessment of INS’ business profile takes into account the characteristics of the Costa Rican market, derived from the National Insurance Law of 2008, and includes INS’ strong market share and the guarantee provided by the Government of Costa Rica to support national INS obligations.
INS is the largest insurer in Costa Rica with a 67% market share, as of November 2021. The company still dominates the mandatory workers’ compensation and mandatory auto insurance segments despite the market opening to other participants several years ago. INS’ mandatory premium segment represents 35% of its business portfolio, as of December 2021.
In 2021, the Costa Rican market showed a recovery, after being affected by a slowdown in the previous year, due to the economic contraction caused by the COVID-19 pandemic and an unfavorable budgetary situation. INS’ profitability improved compared to 2020, presenting a return on equity of 12.3% against 6.4%, consolidating a positive trend of the last three periods. The company has not eased its underwriting standards from adjustments implemented in previous years, such as discontinuing underperforming products in auto, personal property and group life insurance.
Investment income, based on a conservative investment portfolio, has also been stable and strong over the past five years, contributing to a positive net income of USD 212.6 million at the end of 2021, offering solid capital growth, despite the mandatory 25% dividend paid to the government.
AM Best expects INS to continue improving and consolidating its business as it gradually implements its geographic diversification strategy, which should offset increased competition in the voluntary segments. The company is in a good position to maintain its strongest risk-adjusted capitalization, as measured by BCAR, due to its good profitability, appropriate ERM practices and adequate reinsurance with highly rated international reinsurers, which which provides a buffer for variations in the severity of claims and catastrophes. events.
Positive rating movements are not expected in the medium term. Negative rating actions could occur if underwriting results deteriorate or there is a reduction in net profit, given any type of loss that materially affects the company’s profitability or risk-adjusted capitalization at levels that no longer support its current ratings.
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