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10 Nov 2009
Buenos Aires, November 10, 2009 -- Moody's Latin America has affirmed the B2 global local-currency
and the A1.ar Argentine national scale insurance financial strength
(IFS) ratings of Royal & Sun Alliance Seguros Argentina ("RSA
Argentina") and changed its outlook to positive from stable.
According to Moody's, the affirmation of these ratings primarily
reflects the expectation that the parent, RSA Group (based in London,
United Kingdom), will continue to support local operations through
capital injections and risk-sharing arrangements, as well
as through the control over local operations. Therefore,
RSA Argentina's ratings get some uplift from the company's
stand-alone credit profile, given the expectation of continued
The rating agency explained that RSA Argentina's intrinsic credit
strengths include its diversified distribution channels --including
direct and telemarketing, insurance agents, and international
brokers-, as well as its good brand recognition. Other
credit positives are its relatively modest gross underwriting leverage
and its high coverage of local capital requirements.
Among Moody's credit concerns and identified risks for RSA Argentina,
however, are the company's volatile profitability and its
weak overall asset quality. The investment portfolio is primarily
comprised of below-investment-grade instruments -largely
affected by regulatory requirements to invest in domestic assets--.
Furthermore, the company maintains a relatively high exposure (31%
of equity at June 30, 2009) to reinsurance recoverables with the
Argentine reinsurance monopoly (INDER), which is currently in liquidation.
During the last five fiscal years, RSA Argentina has reported weak
profitability, driven by weak investment results, as well
as by underwriting losses. These losses were concentrated in the
automobile business line, which grew significantly since the company's
merger with La República Seguros in 2006. On a positive
note, the rating agency stated that management reduced its underwriting
losses significantly during the last fiscal year (ended June 30th 2009).
Finally, Moody's commented that RSA Argentina's weaknesses
include its relatively small market-share (only 2% of the
local P&C segment), its lack of business diversification on
a net premium basis, and Argentina's poor operating environment
and high sovereign risk. RSA Argentina's operations are highly
concentrated in the automobile business line: 75% of the
company's net premiums written are represented by this segment,
although the insurer offers a wide array of other product lines like homeowners
(10% of net premiums) and transportation (another 6%).
Regarding the outlook change to positive from stable, Moody's said
that it reflects management's capacity to reduce the level of underwriting
losses and the expectation that it will deliver better financial results
in the coming years. The increase in its capitalization level and
the favorable growth prospects given its parent company's (RSA Group's)
interest in the Latin America region, are additional factors explaining
the change to a positive outlook.
Based in Buenos Aires, Royal & Sun Alliance Seguros (Argentina)
S.A. reported total gross written premium of AR$334
million during the last fiscal year, ended on June 30th 2009,
which is an 11% increase from the prior year, and a net loss
of AR$5 million. As of that date, the company's total
assets amounted to AR$422 million, and its shareholders'
equity was reported at AR$82.6 million.
NOTE: Moody´s national scale insurance financial strength
ratings rank an enterprise's financial strength on a relative basis in
comparison with other firms' within the same country. Such ratings
are designed for use at the local (national) level, and they are
not globally comparable. For Argentine companies, national
scale ratings carry the identifier of ".ar". In contrast,
global local-currency insurance-financial strength ratings
indicate the relative credit risk of an insurance company on a globally
comparable scale. In the case of ratings of insurers domiciled
in a country with a speculative grade sovereign rating, such as
Argentina, these ratings are the result of several factors:
the political risk; the risk of a generalized debt moratorium;
the weakness of the legal environment or framework; and the risk
of interference in the functioning of the financial system. Taken
together, the national scale and global local-currency ratings
provide a more comprehensive opinion about the credit risk of the company.
Moody's insurance financial strength ratings are opinions about the ability
of insurance companies to punctually pay senior policyholder claims and
For more information, please visit our website at www.moodys.com/insurance.
Vice President - Senior Analyst
Financial Institutions Group
Moody´s affirms RSA Argentina's ratings, changes outlook to positive
Asst Vice President - Analyst
Financial Institutions Group
No Related Data.
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