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Rating Action:

Moody's moves outlook of Argentine workers' compensation insurers and affiliates to negative on national scale following regulatory change

23 Nov 2009

Ratings affirmed on both global-local currency and Argentine national scales

Buenos Aires, November 23, 2009 -- Moody's Latin America has affirmed the insurance financial strength (IFS) ratings on both the global-local currency (GLC) scale and national scale (NS) for the three rated Argentine workers' compensation (WC) insurance companies -- La Segunda ART (B2/A1.ar), MAPFRE Argentina ART (Ba3/Aa2.ar), and Prevención ART (B2/A1.ar) -- following the government's decision to significantly increase WC policy benefit payments. However, Moody's changed the IFS rating outlook to negative from stable on the national scale for the three insurers, indicating that rating pressure now exists for the companies' NS IFS ratings given the potential negative impact of the recent government action. In addition, the rating agency changed the IFS rating outlook to negative on the Argentine NS for the cooperative parent companies of La Segunda ART and Prevención ART -- La Segunda Cooperativa de Seguros Limitada and Sancor Cooperativa de Seguros Limitada, respectively. Finally, Moody's maintained the stable outlook on the GLC IFS ratings of La Segunda ART, La Segunda Cooperativa, Prevención ART and Sancor, but changed the outlook on the GLC IFS rating of MAPFRE Argentina ART to negative from stable.

MAPFRE ART, PREVENCION ART, AND LA SEGUNDA ART

According to Moody's, the outlook change to negative from stable for MAPFRE ART's Ba3 GLC and Aa2.ar NS IFS ratings and for Prevención ART's and La Segunda ART's A1.ar NS IFS ratings reflects that the increase in the WC benefits -- by means of the Presidential Decree number 1694/2009, issued by the Argentine government on November 6th -- is an overall negative development for the ART insurers. The increased benefit costs mandated by the decree will likely weaken profitability and capitalization of the insurance companies operating in this segment.

Moody's noted that the extent to which the new benefit levels will weaken the insurers' credit profile, however, is not clear at this time, as it will be largely dependent on each company's ability to shift the incremental claims cost to policyholders. That said, notwithstanding the possible transfer of the higher claims cost to clients, the insurers will face timing issues, as they will not be able to immediately increase premium rates to the desired levels. In addition, not all ART insurers will maintain pricing discipline to the same extent, as some may seek greater market share in this highly competitive sector. The rating agency added that the ART insurance companies' regulatory capital position will still be strained, as a result of the higher premiums levels and the resulting higher regulatory solvency requirements (which are based on premiums). The ART insurers will likely face additional pressure and uncertainties until implementation details of the new legal framework are known.

The change in the outlook of Prevención ART's and La Segunda ART's national scale ratings -- whereas the outlook on their GLC IFS ratings remain sable -- is a result of their A1.ar ratings being at the middle of the B2 GLC mapping range. Therefore, their NS IFS ratings could be downgraded before there is negative pressure on their GLC IFS ratings.

The change in MAPFRE Argentina ART's GLC and NS IFS ratings outlook to negative is twofold: a) MAPFRE Argentina ART's NS rating of Aa2.ar is placed at the low-end of possible outcomes for a Ba3 GLC IFS rating, and, as a result, any negative pressure is reflected on both ratings; and b) uncertainties on whether the company will continue to benefit from the current strong level of support from its ultimate parent company, MAPFRE S.A., as it will likely need further capital injection to comply with regulatory solvency requirements and to sustain its high market position.

SANCOR COOPERATIVA DE SEGUROS LTD. (SANCOR) AND LA SEGUNDA COOPERATIVA DE SEGUROS LTD. (LA SEGUNDA)

The change in Sancor's and La Segunda's A1.ar NS IFS rating outlook to negative from stable reflects the view that their capital adequacy and profitability could be pressured by future capital needs from their ART subsidiaries (Prevención ART and La Segunda ART, respectively), should the government's decree weaken the ART's financial position.

Moody's added that the extent of support needed from the ART's parent companies will be a major rating driver for the parents' NS IFS ratings because the ART subsidiaries are a significant component of the two groups. The NS IFS rating outlook could return to stable if the parent companies continue to support the ART companies with capital contributions as needed, without weakening their own financial profile. However, if the companies' intrinsic financial profile deteriorates further -- e.g. lower returns on equity or higher operating leverage-- the companies' NS ratings could be downgraded.

MAPFRE ARGENTINA

Moody's commented that the ratings of MAPFRE Argentina ART's local affiliates -- namely MAPFRE Argentina Seguros (rated Ba3 GLC IFS and Aa2.ar NS IFS) and MAPFRE Argentina Vida (rated Ba3 GLC IFS and Aa2.ar NS IFS) -- are not affected by this rating action. The financial and business profiles of those affiliates are not likely to deteriorate -- nor should the degree of parent support to these companies be reduced -- as a result of the negative pressure on MAPFRE Argentina ART's credit risk profile.

The detailed rating actions are as follows:

Prevención ART:

- Affirmed the IFS rating on the Argentine national scale at A1.ar, changed the outlook to negative from stable

- Affirmed the IFS global local currency rating at B2, with a stable outlook

Sancor Seguros (parent company of Prevención ART):

- Affirmed IFS rating on the Argentine national scale at A1.ar, changed the outlook to negative from stable

- Affirmed the IFS global local currency rating at B2, with a stable outlook

La Segunda ART:

- Affirmed IFS rating on the Argentine national scale at A1.ar, changed the outlook to negative from stable

- Affirmed the IFS global local currency rating at B2, with a stable outlook

La Segunda Cooperativa (main parent company of La Segunda ART):

- Affirmed the IFS rating on the Argentine national scale at A1.ar, changed the outlook to negative from stable

- Affirmed the IFS global local currency rating at B2, with a stable outlook

MAPFRE Argentina ART:

- Affirmed IFS rating on the Argentine national scale at Aa2.ar, changed the outlook to negative from stable

- Affirmed the IFS global local currency rating at Ba3, changed the outlook to negative from stable

Headquartered in Rosario, Argentina, La Segunda Cooperativa, during the first quarter of 2009/10 fiscal year, ended September 30, 2009, reported a net profit of AR$9.3 million, which further increases to AR$22 million when adding the capital contribution from its policyholders which are usually considered as part of gross premiums. Financial income was 21% higher than in the first quarter of 2008 fiscal year, and grew to AR$21.9 million from AR$18.0 million in the prior year's quarter. The company's shareholders' equity rose by 8.3% in the first quarter and totaled AR$288.3 million. Also, headquartered in Rosario, La Segunda ART, during the first quarter of 2009/10 fiscal year, reported a net loss of AR$7.8 million, compared to the small profit of AR$0.1 million shown in the same period of 2008. The company received a capital contribution of AR$3.5 million from its shareholders in this period, which helped to reduce the decline in its shareholders equity to AR$54.1 million from AR$58.5 million as of June 30, 2009.

Headquartered in Sunchales (Santa Fe), Argentina, Sancor Seguros, during the first quarter of 2009/10 fiscal year, ended September 30, 2009, reported a net profit of AR$4.5 million, which further increases to AR$20 million when adding the capital contribution from its policyholders which are usually considered as part of gross premiums. Financial income was AR$18 million, compared to a loss of AR$5 million in the prior year's quarter. The company's shareholders' equity rose by 2% in the first quarter and totaled AR$373.5 million. Also headquartered in Sunchales, Prevención ART, during the first quarter of 2009/10 fiscal year, reported a net profit of AR$9.2 million, compared to the AR$3.3 million gain posted in the same period of 2008. The company's shareholders' equity rose by 5.7% in this first quarter and totaled AR$172 million at September 30, 2009.

Finally, headquartered in Buenos Aires, Argentina, Mapfre ART, during the first quarter of 2009/10 fiscal year, ended September 30, 2009, reported a net loss of AR$13.3 million, compared to a net loss of AR$ 1.6 million reported in the same quarter of previous fiscal year. Financial income was AR$10 million, higher than the AR$8 million in the prior year's period. The company's shareholders' equity declined by 29.5% in this first quarter and totaled AR$81.3 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, 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.

Rodolfo Nobrega

Vice President - Senior Analyst

Financial Institutions Group

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

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

Moody's moves outlook of Argentine workers' compensation insurers and affiliates to negative on national scale following regulatory change
No Related Data.
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