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Rating Action:

Moody's rates Alianza Seguros and Alianza Vida B2/Aa3.bo for insurance financial strength

 The document has been translated in other languages

13 Aug 2010

First-time ratings assigned to two Bolivian insurers

Buenos Aires, August 13, 2010 -- Moody's Latin America has assigned a B2 global local-currency insurance financial strength (IFS) rating and a Aa3.bo Bolivian national scale IFS rating to Alianza Compañía de Seguros y Reaseguros S.A. ("Alianza Seguros") and to Alianza Vida Seguros y Reaseguros S.A. ("Alianza Vida"). Both companies carry a stable outlook.

Alianza Seguros is a leading property-casualty (P&C) insurer in the Bolivian market, focusing primarily on accident/health and fire/allied perils, while the smaller Alianza Vida is a mid-sized life insurer operating in the same country, which focuses on the credit insurance and accident/health sectors. The two Bolivian insurers share a common brand, as well as common ownership. The main shareholder of both companies is the Peruvian insurance group, La Positiva Seguros y Reaseguros, while other shareholders include Grupo SURA (Colombia), Corporación Cervesur (Peru), and local businessmen.

Moody's ratings on Alianza Seguros reflect the company's adequate positioning in the local market -- being the leading player in the accident and health insurance segment and one of the largest companies in terms of gross premiums for the overall P&C market. Another key company strength is its sustained profitability track record, with an 8% average return on capital during the past five years. However, these strengths are tempered by several credit concerns and challenges, including Alianza Seguros's significant investment risk (given the significant concentration in below investment-grade assets), its high business dependence on the accident and health insurance sector (60% of company's net premiums written) and specific clients, its poor capitalization, and its very rapid growth over the past few years in a highly competitive insurance market, which has pressured the company's capitalization and financial results.

The rating agency also explained that Alianza Vida's ratings are based on the company's sustained and adequate profitability (five year average return on capital of 18%), its control over distribution channels, and the relatively low product risk of its key business lines of credit life and accident/health insurance. Other credit strengths include the positive characteristics of the company's main shareholders -- La Positiva (Peru) and SURA Group (Colombia) -- and its integration with its P&C affiliate, Alianza Seguros, in terms of management and brand, and sharing of common customers. Nevertheless, these strengths are considerably mitigated by Alianza Vida's significant investment risk, its relatively modest market presence, its weak capitalization, and its very significant client and distributor concentration (e.g., the top two group policyholders represented more than 50% of the company's gross premiums written in fiscal year 2009).

Also negatively affecting both companies' credit profiles are Bolivia's weak operating environment, as reflected in Moody's assessment of systemic risks related to the country's economy, and the weak development of the insurance market in Bolivia compared to that of other countries.

Among the factors that could lead to an upgrade of Alianza Seguros's ratings are the following: 1) material improvement in the credit quality of the company's assets (e.g., investment-grade assets greater than 50% of investments), 2) significant improvement in the Bolivian government bond rating and/or the country's operating environment (e.g., by more than two notches), and 3) sustained improvement in its capitalization (e.g., gross underwriting leverage less than 4x). Factors that could result in a rating downgrade for Alianza Seguros include the following: 1) gross underwriting leverage above 8x, 2) a sustained reduction in the company's market share, 3) prolonged weakening of profitability and/or underwriting performance (e.g., return on capital consistently below 15%), and 4) significant deterioration in the Bolivian government bond rating and/or the country's operating environment.

For Alianza Vida, some of the factors that could result in a rating upgrade are the following: 1) significant improvement in Bolivia's operating environment, 2) a more diversified business profile (e.g., at least two other lines of business each representing 10% or more of net premiums), and 3) growth in market share while maintaining its good profitability. Factors that could result in a rating downgrade include: 1) sharp decline in the company's equity/total assets ratio (e.g., below 50%), 2) sustained deterioration in profitability (returns on capital below 15%), or 3) significant deterioration in the Bolivian government bond rating and/or the country's operating environment.

Alianza Seguros, headquartered in Santa Cruz, Bolivia, reported net income of Bs$4.4 million for the first half of the 2010 fiscal year, ended June 30. This improvement was due mainly to better underwriting results and sustained investments returns. Gross premiums accounted for Bs$122.4 million, and shareholders' equity grew to Bs$52.3 million, up 34% from the Bs$39 million reported at fiscal year-end 2009. This equity increase was largely due to capital contributions of Bs$9 million during the second quarter of 2010. Also based in Santa Cruz, Alianza Vida for the first half of the 2010 fiscal year reported net income of Bs$1.5 million. Gross premiums accounted for Bs$35.5 million, and shareholders' equity was Bs$20.9 million, down from Bs$31 million at fiscal year-end 2009, as a large dividend was taken out of the company to capitalize its affiliate, Alianza Seguros.

NOTE: Moody's national scale insurance financial strength ratings rank an enterprise's financial strength compared to that of other firms in the same country. These ratings are designed for use at the local (national) level, and are not globally comparable. The national scale ratings of Bolivian companies carry the identifier of ".bo". In contrast, global local-currency insurance financial strength ratings indicate the credit risk of an insurance company on a globally comparable scale. The ratings of insurers domiciled in a country with a speculative grade sovereign rating, such as Bolivia, take into consideration such factors as political risk, the risk of a generalized debt moratorium, the state 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 on a company's credit risk. Moody's insurance financial strength ratings express opinions about the ability of insurance companies to pay senior policyholder claims and obligations in a timely manner.

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

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

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

Moody's Latin America, Calificadora de Riesgo
Cerrito 1186, 11th fl
Buenos Aires C1010AAX
Argentina

Moody's rates Alianza Seguros and Alianza Vida B2/Aa3.bo for insurance financial strength
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