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Rating Action:

Moody's downgrades Illimani's national scale rating; affirms global-local currency rating

 The document has been translated in other languages

31 Mar 2010

Buenos Aires, March 31, 2010 -- Moody's Latin America has affirmed Seguros Illimani's Caa1 insurance financial strength (IFS) rating (global local currency scale - GLC), and downgraded the company's IFS rating on Bolivia's national scale to Baa2.bo. from Baa1.bo. Both ratings have a stable outlook.

Seguros Illimani, which is privately-owned by a local businessman, is a small Bolivian property and casualty insurer. Until 2008, the company focused primarily on mandatory automobile accident-liability insurance.

According to Moody's, the downgrade of Seguros Illimani's national scale IFS rating to Baa2.bo from Baa1.bo primarily reflects the company's relatively weak and deteriorating business position, as well as its poor financial fundamentals - in comparison with other insurers' in the Bolivian market.

Moody's analyst Diego Nemirovsky emphasizes: "Our key credit concerns are Seguros Illimani's small capital base, weak market presence, and poor profitability -- the last factor having been clearly highlighted by its net losses over several recent years, as well as by its significant earnings volatility." The company's credit profile has also been negatively impacted by its market size -it is one of the smallest participants in Bolivia's property and casualty market, holding a share of less than 2% in 2009.

The rating agency adds that Seguros Illimani's current business strategy faces significant challenges and uncertainties. Management had planned to expand its other lines of business after exiting the mandatory automobile segment (i.e. SOAT) — formerly, the company's core business until 2009, and a business line characterized by declining price trends and elevated loss ratios. During that year, however, the company could not significantly expand the distribution of new property and casualty insurance, which led to very low premium levels, as well as to considerable underwriting losses (e.g. combined ratio of about 118% in 2009.)

Moody's lead analyst Diego Nemirovsky commented: "Management's inability to successfully diversify its product focus, and its recent decision to reenter the SOAT market in 2010 creates much uncertainty and concern for us about the company's future business strategy."

Moody's noted, however, that Seguros Illimani is a long-standing traditional insurance company in the marketplace, including being one of the leading SOAT coverage providers for many years. Although the current competitive SOAT market has been causing poor results for Seguros Illimani, the market's mandatory nature could provides some stability in the company's business volumes going forward, allowing for the possibility of performance improvements under certain conditions.

Based in La Paz, Seguros Illimani reported net written premiums of Bs$ 13.2 million for the fiscal year ended December 31, 2009. This was down 51% from the Bs$ 27 million posted in the previous year. Seguros Illimani's shareholders' equity declined slightly to Bs$ 16.4 million, as of December 31, 2009 compared to Bs$ 17.0 reported at year-end 2008.

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 Bolivian companies, national scale ratings carry the identifier of ".bo".

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 (i.e. Bolivia), these ratings are the result of, among 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 obligations.

For more information, please visit our website at www.moodys.com/insurance.

Buenos Aires
Diego Nemirovsky
Asst Vice President - Analyst
Financial Institutions Group

Buenos Aires
Alejandro Pavlov
Vice President - Senior Analyst
Financial Institutions Group

Moody's downgrades Illimani's national scale rating; affirms global-local currency rating
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