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Rating Action:

Moody's rates Seguros Generales Suramericana and Seguros de Vida Suramericana Baa3 for insurance financial strength

 The document has been translated in other languages

Global Credit Research - 30 Nov 2010

First-time global local-currency and foreign-currency insurance financial strength ratings assigned

Sao Paulo, November 30, 2010 -- Moody's Investors Service has assigned first-time insurance financial strength (IFS) ratings of Baa3 global local currency (GLC) and Baa3 global foreign currency (GFC) to Seguros Generales Suramericana S.A. and Seguros de Vida Suramericana S.A. All ratings have stable outlooks.

RATINGS RATIONALE

According to Moody's, the ratings of Seguros Generales Suramericana and Seguros de Vida Suramericana consider several factors in common, including their very strong franchise in the Colombian insurance market, both being market leaders in the segments in which they operate, their relatively well-diversified investment portfolio, and good capitalization levels for each company. Moody's noted that the ratings of both companies, however, are constrained by Colombia's operating environment risk and their reliance on investment income to sustain earnings.

The companies benefit from their integration with Grupo de Inversiones Suramericana, the leading Colombian financial services parent company which also owns the leading bank in Colombia (Bancolombia), as well as its affiliation with other diversified industrial businesses -- particularly cement and food processing -- in addition to the financial firms. Moody's lead analyst for the Suramericana insurance companies, Rodolfo Nobrega, commented: "Both companies benefit from their integration and synergies with Grupo de Inversiones Suramericana, given the wide presence of the groups in the Colombian economy, thereby leveraging the insurance operations."

Seguros Generales Suramericana:

Elaborating on its rating rationale for Seguros Generales Suramericana, Moody's noted that the Baa3 GLC and GFC IFS ratings reflect primarily the company's leading market position in the local general insurance market (with about 16% market share), and it's good capital adequacy (gross underwriting leverage at 3.4x shareholders' equity) despite its exposure to catastrophe risk given Colombia's location along the Andes cordillera and Pacific coastline. Seguros Generales Suramericana's well-balanced investment portfolio, with little exposure to non-investment-grade assets relative to regional peers, is also a positive consideration to its credit profile.

However, Seguros Generales Suramericana's high product concentration in automobile and compulsory auto liability (SOAT) insurance lines, in addition to its volatile earnings -- largely dependent on investment income -- constrain the company's ratings. Moody's noted that Seguros Generales Suramericana's volatile earnings is a result of its dependence on investment income, as its combined ratio has been consistently above 100%, notwithstanding a recent declining trend -- 105% in 2009, compared to 119% in 2006.

Among factors that could result in a ratings upgrade of Seguros Generales Suramericana, Moody's noted the following: 1) stable profitability, coupled with reduced dependence on investment results -- i.e. sustained combined ratios below 100%, 2) gross underwriting leverage consistently below 3x shareholders' equity, 3) enhanced product diversification with reduced exposure to the auto insurance segment, and 4) an improvement in Colombia's operating environment/sovereign bond rating. Conversely, Seguros Generales Suramericana's ratings could be downgraded if 1) its market share declines considerably, 2) its capitalization level deteriorates -- e.g. gross underwriting leverage rises above 6x shareholders' equity, 3) its return on capital is sustained below 5%, 4) a catastrophe event that results in losses greater than 15% of equity, or 5) deterioration in Colombia's operating environment/sovereign bond rating.

Seguros de Vida Suramericana:

Expanding on Suramericana Vida's rating rationale, the rating agency said the company's Baa3 GFC and GLC IFS ratings are based on its well-diversified product portfolio -- well-balanced among individual and group life, personal accident, medical insurance, and annuities -- and its good capitalization metrics. Moody's added that Suramericana Vida's solid earnings, with returns on capital consistently in the 20%-range, is also a positive consideration to the company's credit risk profile. The rating agency noted that, differently from its general insurance affiliate, Suramericana Vida's profitability was not significantly hurt during the global financial crisis, when it still reported returns on capital of 17% in both 2007 and 2008.

Counterbalancing these credit strengths are Suramericana Vida's declining market share (currently at about 21%, compared to 26% in 2006), its dependence on investment income to sustain strong earnings, and its concentrated investment exposure to Colombian sovereign bonds. In addition, Colombia's weak operating environment has a negative influence on the company's credit profile.

Factors that could result in a ratings upgrade of Suramericana Vida include: 1) improvement in the company's capitalization, with operating leverage -- as measured by gross premiums and reserves to shareholders' equity -- below 3x equity, 2) improvement in the credit quality of its investment portfolio, which, consequently, should lead to an improvement in the company's liquidity, and 3) an improvement in Colombia's operating environment/sovereign bond rating. The rating agency added that a deterioration of Suramericana Vida's capital adequacy (increase in gross underwriting leverage above 6x or decline in equity-to-assets below 15%), a considerable decline in profitability (sustained returns on capital below 10%), or a deterioration in the Colombian operating environment/sovereign bond rating could lead to a downgrade of the company's ratings.

Seguros Generales Suramericana and Seguros de Vida Suramericana are direct wholly-owned subsidiaries of Suramericana S.A., the insurance subholding company of Grupo de Inversiones Suramericana. In addition to the life and property and casualty insurers, Suramericana S.A. is the direct parent company of a workers' compensation insurance provider (Sura ARP), as well as a healthcare services company (Sura EPS). Suramericana S.A. is minority owned by Munich Re, which retains 18.9% ownership of the subholding, while the remaining 81.1% is owned by Grupo de Inversiones Suramericana.

For the three quarters of 2010, ended on September 30, Seguros Generales Suramericana and Seguros de Vida Suramericana reported total revenues of COP716 billion and COP927 billion, respectively, and net income of COP136 billion and COP137 billion, respectively. On September 30, 2010, Seguros Generales Suramericana's total assets were COP1,267 billion and shareholders' equity was COP406 billion. On that same date, Seguros de Vida Suramericana's total assets amounted to COP2,788 billion, and its shareholders' equity was COP685 billion.

The principal methodologies used in this rating were Moody's Global Rating Methodology for Property and Casualty Insurers published in May 2010, and Moody's Global Rating Methodology for Life Insurers published in May 2010.

Moody's insurance financial strength ratings are opinions of the ability of insurance companies to pay punctually senior policyholder claims and obligations.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Sao Paulo
Rodolfo Nobrega
Vice President - Senior Analyst
Financial Institutions Group
Moody's America Latina Ltda.
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New York
Robert Riegel
MD - Insurance
Financial Institutions Group
Moody's Investors Service
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Moody's America Latina Ltda.
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Moody's rates Seguros Generales Suramericana and Seguros de Vida Suramericana Baa3 for insurance financial strength
No Related Data.
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