CONTACTS:
FOR IMMEDIATE RELEASE
MEXICO CITY - DECEMBER 02, 2016 02:21 PM (EST)
A.M. Best has downgraded the Financial Strength Rating to B (Fair) from B++ (Good) and the Long-Term Issuer Credit Rating to “bb+” from “bbb” of Istmo Compañía de Reaseguros, Inc. (Istmo Re) (Panama City, Panama) and its subsidiary, Liffey Reinsurance Company Designation Activity Company (Liffey Re) (Dublin, Ireland). These Credit Ratings (ratings) remain under review with negative implications.
The rating downgrades of Istmo Re reflect the company’s faster than expected deterioration in operating performance as of September 2016 and the corresponding effect on its capital position and financial leverage. The rating downgrades of Liffey Re mirror the actions taken on its parent company, Istmo Re, given its integration and A.M. Best’s strategic view of the group. Partially mitigating the previous negative rating factors is that the companies’ risk-adjusted capitalization remains strong. The under review with negative implications status reflects the still-developing actions being executed by the group in order to diminish its financial leverage and redefine its group strategy.
As of September 2016, Istmo Re’s operating performance continued to deteriorate, given the significant lower volume of reinsurance premium and larger claims, resulting in negative bottom line results representing around 18% of its reported capital for 2015. This negative result places additional pressure on the financial flexibility of the company by sharply diminishing its earnings before interest, taxes, depreciation and amortization to interest payment coverage ratio and causing deterioration in its risk-adjusted capitalization.
For the past three years, Istmo Re substantially increased its financial leverage while expanding the reach of its reinsurance and insurance business. However, with the losses experienced during 2015 as a result of poor performance in its reinsurance operations, its debt servicing capabilities became partially impaired and have affected the group’s overall strategy and business prospects.
Istmo Re’s strong capital position has provided some buffer for the large losses presented during 2016; however, risk-adjusted capitalization showed a relative deterioration during the year, but still remains strong. Nevertheless, if the negative trend in operating performance continues at the pace shown during 2016, the company’s capital position could weaken and A.M. Best’s view of its risk-adjusted capitalization could change in the short to medium term.
The under review status recognizes the still developing measures taken by Istmo Re’s management to improve its financial flexibility and diminish its debt position. A.M. Best believes that such measures could represent a disruption in the current business model and profile, and therefore generate negative pressure on the ratings.
Negative rating actions could result if the company continues to increase its financial leverage ratio or if operating performance continues to deteriorate to levels that affect A.M. Best’s assessment of risk-adjusted capitalization. Positive rating actions are not expected in the medium term; however, A.M. Best’s view of the ratings could become favorable if the measures taken by management diminish significantly its financial leverage and if there are improvements in operating performance while maintaining sound risk-adjusted capitalization.
The rating downgrades and the under review with negative implications status of Liffey Re reflect the full dependence of the company on Istmo Re’s business as its captive reinsurer and deterioration in operating performance. Liffey Re’s ratings will move in tandem with actions taken on Istmo Re.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
View a general description of the policies and procedures used to determine credit ratings. For information on the meaning of ratings, structure, voting and the committee process for determining the ratings and monitoring activities, please refer to “Understanding Best’s Credit Ratings.”
This press release relates to rating(s) that have been published on A.M. Best’s website. For additional 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 A.M. Best’s Recent Rating Activity web page.
A.M. Best does not validate or certify the information provided by the client in order to issue a credit rating.
While the information obtained from the material source(s) is believed to be reliable, its accuracy is not guaranteed. A.M. Best does not audit the company’s financial records or statements, or otherwise independently verify the accuracy and reliability of the information; therefore, A.M. Best cannot attest as to the accuracy of the information provided.
A.M. Best’s credit ratings are independent and objective opinions, not statements of fact. A.M. Best is not an Investment Advisor, does not offer investment advice of any kind, nor does the company or its Ratings Analysts offer any form of structuring or financial advice. A.M. Best’s credit opinions are not recommendations to buy, sell or hold securities, or to make any other investment decisions. View our entire notice for complete details.
A.M. Best receives compensation for interactive rating services provided to organizations that it rates. A.M. Best may also receive compensation from rated entities for non-rating related services or products offered by A.M. Best. A.M. Best does not offer consulting or advisory services. For more information regarding A.M. Best’s rating process, including handling of confidential (non-public) information, independence, and avoidance of conflicts of interest, please read the A.M. Best Code of Conduct.
A.M. Best is the world’s oldest and most authoritative insurance rating and information source.