TEXT-Fitch affirms Seguros Inbursa at 'BBB', 'AAA(mex)'
Dec 5 - Fitch Ratings has affirmed Seguros Inbursa's Local Currency Insurer Financial Strength (IFS) rating at 'BBB' with a Stable Outlook. Fitch has also affirmed Seguros Inbursa's Local Currency National Scale IFS rating at 'AAA(mex)' with a Stable Outlook. Fitch's rating action reflects the company's strong competitive position mainly in the Auto and P&C market, solid financial profitability, large reserves coverage, reasonable capital structure and conservative reinsurance protection with low equity exposure to severity losses. The ratings also reflect the company's clients concentration, generated by its larger insurance policy. Seguros Inbursa (Inbursa) is among the leading insurance companies in Mexico in terms of premiums written (The fifth largest in Dec. 31, 2011). In 2011 Inbursa benefited from the underwriting, for a 24-month period, of the Mexico's largest P&C policy (Pemex), which represents around 30% of the company's total written premiums. The underwriting of the Pemex policy has enabled the company to reach important premium volumes and high efficiency levels over the years that affect the company's balance sheet; this has no impact on the company's income statement as it retains only 5% of the policy. The rating actions also reflect Inbursa's very conservative reserving approach, which is partly driven by the stringent requirements set under Mexican insurance regulation. Total Reserves to NRP ratio stood at 269.7% in 1H'12 (December 11: 322.8%), whereas catastrophic reserves alone amounted to US$477 million, which represents 137 times the priority set in the current catastrophic reinsurance contract. The ample amount of accumulated reserves allows the company to have a broad base of resources available for investment, which translates into an important net financial income contribution (21.4% of NEP in 1Q'12). Fitch rating actions are also based on Inbursa's signing of a conservative reinsurance program. Through this reinsurance scheme, Inbursa has catastrophic reinsurance protection of US$ 550 million, and the possible maximum retained loss in any kind of event could only reach a low 0.7% of company's total equity, excluding Pemex policy in which retained losses can reach 4%. Based on Fitch's own calculations, Inbursa's capital structure is within acceptable levels for the current rating category. At end 1Q'12 Inbursa's operating leverage was 1.8x (1.9x in Dec.11) and financial leverage (liabilities to capital) reached 6.0x (6.9x on December 11). However, leverage ratios are mostly influenced by the company's large catastrophic reserves accumulation. A reduction in leverage levels or a significant increase in liquidity position, business diversification and profitability margins, could lead to a positive rating action. On the other hand, Inbursa's ratings may be downgraded if the liquidity and the capital position fall considerably below current levels, and if loss and combines ratios increase significantly. 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 - Global Master Criteria' (Oct. 18 2012). Applicable Criteria and Related Research: Insurance Rating Methodology - Amended