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Rating Action:

Moody’s downgrades Argentine insurers and reciprocal guarantors as economic strains persist

 The document has been translated in other languages

04 September 2019

Buenos Aires City , September 4, 2019 – Moody's Latin America Agente de Calificación de Riesgo has downgraded the global local currency (GLC) and national scale (NS) insurance financial strength (IFS) ratings of 12 insurers and 5 reciprocal guarantors in Argentina. This action follows Moody's 30 August 2019 downgrade of the Argentine government's bond rating to Caa2 (under review for downgrade) from B2 with negative outlook, and the lowering of Argentina's sovereign local currency ceiling to B2 from Ba2 (see press release "Moody's downgrades Argentina's ratings to Caa2; places ratings under review for downgrade"). All ratings remain under review for downgrade, consistent with the review on the sovereign rating. See complete list of companies and rating actions below.

RATINGS RATIONALE

The rating downgrades on these entities reflect Moody's assessment of the correlation between their credit profiles and that of the Argentine sovereign, primarily taking into account their direct and indirect exposures to sovereign assets as well as other investments that are correlated to the sovereign. The deterioration in Argentina's credit profile as captured in the sovereign rating downgrade has direct implications for the ratings of insurers and reciprocal guarantor, given that it also expresses the increase of systemic risks for all local credits. This reflects increased risks to investors such as insurers and reciprocal guarantors, of holding Argentine government bonds. Because of these sovereign linkages, the downgrade of the Argentine government bond and related ratings led to the downgrade of the 17 entities' IFS ratings given their asset concentrations in such investments.

The exposures affect three credit parameters for insurers' and reciprocal guarantors' IFS ratings: Asset Quality, Capital Adequacy, and Financial Flexibility, consistent with Moody's key rating factors. Specifically, the insurers' investment exposures to sovereigns, banks (through cash and time deposits), and other affected corporate, structured and mutual fund assets has weakened the insurers' asset quality and risk-adjusted capitalization. Furthermore, as insurers' and reciprocal guarantors' financial flexibility is constrained by the breadth and depth of local capital markets, deterioration in the sovereign rating negatively impacts financial flexibility as well. These pressures have an impact on a specific entity's rating that varies based on a number of factors that include 1) the significance of the investment exposure to sovereign and related assets, 2) ownership and parental support, 3) how strongly or weakly the insurer was positioned previously at its rating level, and 4) its credit rating position relative to the country ceiling.

Moody's notes, however, that Argentine insurers' and reciprocal guarantors' broadly benefit from very low reliance on debt funding and financing and their liquidity positions are relatively strong, given premium revenue streams that derive largely from legally-mandated insurance coverages. The insurers and reciprocal guarantors' also benefit from their profitability and from the internal capital generation that derives from underwriting, as well as investment activities. These considerations, in addition to past experience whereby most insurers and reciprocal guarantors continued paying their policyholders obligations during sovereign crisis, broadly support stronger ratings relative to the country's bond rating.

Moody's has downgraded the following insurers' GLC and NS IFS ratings, given their significant direct investment exposure to sovereign and bank assets. All of the following ratings are under review for downgrade:

-Allianz Argentina Compania de Seguros S.A.: GLC and NS IFS ratings downgraded to B2 and Aa3.ar, from Ba2 and Aaa.ar, respectively

-BBVA Consolidar Seguros: GLC and NS IFS ratings downgraded to B2 and Aa3.ar, from Ba2 and Aaa.ar, respectively

-Caja de Seguros S.A.: GLC and NS IFS ratings downgraded to B2 and A1.ar, from Ba3 and Aaa.ar, respectively

-Chubb Seguros Argentina S.A.: GLC and NS IFS ratings downgraded to B2 and Aa3.ar, from Ba2 and Aaa.ar, respectively

-Fianzas y Credito S.A. Cia. de Seguros: GLC and NS IFS ratings downgraded to B3 and Baa2.ar, from B2 and A2.ar, respectively

-La Segunda ART: GLC and NS IFS ratings downgraded to B3 and A3.ar, from B1 and Aa2.ar, respectively

-La Segunda Compania de Personas S.A.: GLC and NS IFS ratings downgraded to B3 and A3.ar, from B1 and Aa2.ar, respectively

-La Segunda Coop. Ltda Seguros: GLC and NS IFS ratings downgraded to B3 and A3.ar, from B1 and Aa2.ar, respectively

-Origenes Seguros S.A.: GLC and NS IFS ratings downgraded to B3 and Baa1.ar, from B1 and Aa3.ar, respectively

-Provincia Seguros: GLC and NS IFS ratings downgraded to B3 and Baa2.ar, from B2 and A1.ar, respectively

-San Cristóbal Seguros Generales: GLC and NS IFS ratings downgraded to B3 and A3.ar, from B1 and Aa2.ar, respectively

-Seguros Sura S.A. (Argentina): GLC and NS IFS ratings downgraded to B2 and A2.ar, from Ba3 and Aa1.ar, respectively

Financial guarantors:

-Affidavit S.G.R.: GLC and NS IFS ratings downgraded to Caa1 and Baa3.ar, from B2 and A2.ar, respectively

-Aval Rural S.G.R.: GLC and NS IFS ratings downgraded to B3 and Baa1.ar, from B1 and Aa3.ar, respectively

-Fondo de Garantías del Chaco (FOGACH): GLC and NS IFS ratings downgraded to Caa1 and Baa3.ar, from B2 and A3.ar, respectively

-Garantías BIND SGR: GLC and NS IFS ratings downgraded to B3 and Baa1.ar, from B1 and Aa3.ar, respectively

-Vínculos SGR: GLC and NS IFS ratings downgraded to Caa1 and Baa3.ar, from B2 and A3.ar, respectively

The rating agency said that the review process on these ratings will focus on further analysis of the impact of the deterioration of Argentina's sovereign rating profile on the individual entities' credit profile, as well as the conclusion of the review process on the Argentina sovereign rating. The process will also look at the level of rating uplift granted to entities owned by stronger parents, in the context of a very lowly rated sovereign.

Among the factors that could lead to a further downgrade of the Argentine insurers' and reciprocal guarantors' ratings include: 1) an additional downgrade in Argentina's sovereign bond rating, 2) deterioration in the country's operating environment, or 3) a worsening trend in the companies' capital adequacy, asset quality and profitability. Given that the ratings are under review for downgrade, an upgrade is unlikely. That said, the following factors could prompt ratings confirmations with stable outlooks 1) a confirmation of Argentina's sovereign bond rating with a stable outlook, 2) improvement in the country's operating environment, or 3) a sustained improving trend in the companies' capital adequacy, asset quality, and profitability.

Moody's insurance financial strength ratings are opinions of the ability of insurance companies to pay punctually senior policyholder claims and obligations. For more information, visit our website at www.moodys.com/insurance.

The principal methodology used in rating ALLIANZ Argentina Compania de Seguros S.A., BBVA Consolidar Seguros, Caja de Seguros S.A., Chubb Seguros Argentina S.A., Fianzas y Credito S.A. Cia. de Seguros, La Segunda ART, La Segunda Coop. Ltda Seguros, Provincia Seguros, San Cristobal Seguros Generales, Seguros Sura S.A. (Argentina), La Segunda Compania de Personas S.A. and Origenes Seguros S.A. was Procedures Manual for Insurance Companies published in January 2017. The principal methodology used in rating Affidavit S.G.R., Aval Rural S.G.R., Fondo de Garantias del Chaco (FOGACH), Garantias BIND SGR, and Vinculos SGR was Procedures Manual for the Rating of Guarantor Entities published in January 2017. Please see the Rating Methodologies page on www.moodys.com.ar for a copy of these methodologies.

Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in May 2016 entitled "Mapping National Scale Ratings from Global Scale Ratings". While NSRs have no inherent absolute meaning in terms of default risk or expected loss, a historical probability of default consistent with a given NSR can be inferred from the GSR to which it maps back at that particular point in time. For information on the historical default rates associated with different global scale rating categories over different investment horizons, please see http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1174796 .

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.ar.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

For issuers domiciled in Argentina, the regulatory report related to this rating action is available on www.moodys.com.ar.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com.ar, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued the ratings.

Please see www.moodys.com.ar for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com.ar for additional regulatory disclosures for each credit rating.

Marcelo De Gruttola
AVP-Analyst
Financial Institutions Group
Moody's Latin America ACR
Ing. Butty 240
16th Floor
Buenos Aires City
Argentina
JOURNALISTS : 1 800 666 3506
Client Service : 1 212 553 1653

Marc R. Pinto, CFA
MD-Financial Institutions
Financial Institutions Group
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Releasing Office :
Moody's Latin America ACR
Ing. Butty 240
16th Floor
Buenos Aires City, C1001AFB
Argentina
JOURNALISTS : 1 800 666 3506
Client Service : 1 212 553 1653

© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any rating, agreed to pay to Moody’s Investors Service, Inc. for ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and MIS also maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

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