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Fitch Affirms Balboa Re's Rating at 'BBB+'; Outlook Stable
June 12, 2014 / 4:21 PM / 3 years ago

Fitch Affirms Balboa Re's Rating at 'BBB+'; Outlook Stable

(The following statement was released by the rating agency) NEW YORK, June 12 (Fitch) Fitch Ratings has affirmed Balboa Reinsurance Ltd.'s (Balboa) International Insurer Financial Strength Rating (IFS) of 'BBB+' with a Stable Outlook. Key Rating Drivers Balboa's rating is based on the ability and willingness of the company's ultimate parent, Citigroup Inc. (Citigroup), to provide support when needed. Fitch rates Citigroup's long-term local-currency Issuer Default Rating at 'A' with a Stable Outlook. Balboa is considered by Fitch to be "strategically important" to Citigroup. However, the current start-up profile and the fact that the expected business plan will remain modest compared to Citigroup's overall footprint in Latin America, suggest that a disposition/run off of the company will not alter the operating profile of its parent. Balboa's business plan focuses exclusively on capturing business from Citigroup's operations in the region. New underwritten business will come from the expansion of Citigroup's operations in Central America and no third-party business will be underwritten by Balboa. Balboa's performance is consistent with its current start-up profile. Balboa generated a modest net loss in 2013 due to expenses incurred to start operations. In 2014, Balboa expects to register gross written premiums of USD10 million, given the gradual migration of ceded premiums from Citigroup's subsidiaries in Central America. Balboa is expected to break even by the end of 2014. Balboa's projections anticipate rapid growth of reinsurance premiums, but well-balanced with the current equity base. Fitch does not expect operating leverage (measured by net earned premiums to equity) to exceed 1.7x in the short term. Given the retail nature of the underwritten business, Balboa expects to retain in full the expected premiums. Currently, Balboa does not have a catastrophic retrocession program, but it is expected to be established when Balboa is fully operational. Balboa's domicile, Turks and Caicos, has a weak regulatory framework relative to other domiciles. However, this weakness is mitigated by Citigroup's effective risk policies. Rating Sensitivities Future rating actions will be a function of changes in Citigroup's willingness and ability to support Balboa. An unexpected sale of Balboa by Citigroup could result in a multi-notch downgrade of Balboa's rating. Considering the current business plan and strategic importance of Balboa to Citigroup, there is limited upside potential for Balboa's ratings over the medium term. Contact: Primary Analyst Franklin Santarell Managing Director 212 908 0739 franklin.santarelli@fitchratings.com Fitch Ratings, Inc. 33 Whitehall Street New York, NY 10004 Secondary Analyst Milena Carrizosa Director +57 1 326-9999 ext 1090 Fitch Ratings Colombia Calle 69 A No. 9-85 Bogota, Colombia Committee Chairperson Julie Burke Managing Director +1-312-368-3158 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Additional information is available at 'www.fitchratings.com'. Applicable Criteria and Related Research: --'Insurance Rating Methodology' (Nov. 13, 2013); --'Rating FI Subsidiaries and Holding Companies' (August 2012). Applicable Criteria and Related Research: Rating FI Subsidiaries and Holding Companies here Insurance Rating Methodology here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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