TEXT-Fitch affirms Maxseguros EPM's IFS rating at 'BBB'
Nov 27 - Fitch Ratings has affirmed Maxseguros EPM Ltd's Insurer Financial Strength (IFS) rating at 'BBB'. The Rating Outlook is Stable. The rating reflects the strategic importance of Maxseguros EPM for Empresas Publicas de Medellin E.S.P. EPM (the parent). This captive reinsurance company is a core subsidiary in charge of managing the risks and structuring the insurance coverage for EPM Group. In addition, Maxseguros continues to have a non-retention risk policy, limited exposure of its equity, investment portfolio with high quality and liquidity, and comfortable leverage ratios. Maxseguros is considered a core subsidiary of EPM due to its tight linkage with EPM's Risk Management department. Besides, there is a formal business partnership agreement between EPM and the captive that provides rights and obligations to both parties and the resources necessary for the optimal operation of the captive, especially in regards to investments, human resources, and corporate governance. Empresas Publicas de Medellin (EPM) has a Fitch rated Local Currency Issuer Default Rating (IDR) of 'BBB' with a Stable Outlook. EPM's ratings reflect the company's low business risk resulting from its business diversification and characteristics as a utility service provider. EPM provides electricity, water and sewage water, natural gas distribution services as well as electric generation and telecommunication services. The company's ratings also reflect its solid credit protection measures supported by low leverage, healthy interest coverage and strong liquidity position. Maxseguros has demonstrated a continued strengthening of capital. As Sept. 30, 2012 Maxseguros capital increased in USD 14.5 million in order to comply with the Colombian Superintendence to get the authorization to operate as a direct reinsurer. As a result, leverage ratio measured as liabilities to equity declined to 1,1x as Sept. 30, 2012 from 2.1x as Sept. 30, 2011. Maxseguros profitability is adequate to its business profile. As of Sept. 30 2012, Maxseguros increased its net income to USD1.9 million from USD1.0 (Sept. 30, 2011) due to higher ceding commissions mainly coming from its participation in the security program of Ituango's construction all risk coverage and the management risk fee agreed with EPM. Maxseguros doesn't retain any risk on this policy and cedes 100% to a reinsurance pool with high and strong quality. Liquidity ratios are strong. The company places its deposits in financial institutions with good credit quality and also has marketable investments in funds concentrated in fixed income investments. As Sept. 30, 2012 the coverage ratio of liquid assets over reserves stood at 1.7x and compares favourably with the industry. Key rating triggers that may lead to a downgrade include negative changes in availability and willingness of 'Empresas Publicas de Medellin' to provide support. An upgrade may be considered with positive changes in the credit profile of the Parent. Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable Criteria and Related Research: --'Insurance Rating Methodology' (Oct. 18, 2012). Applicable Criteria and Related Research: Insurance Rating Methodology - Amended
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