A.M. Best Affirms Credit Ratings of Reaseguradora Patria, S.A.

MEXICO CITY–(BUSINESS WIRE)–A.M. Best has affirmed the Financial Strength Rating of A
(Excellent), the Long-Term Issuer Credit Rating (Long-Term ICR) of “a”
and the Mexico National Scale Rating of “aaa.MX” of Reaseguradora
Patria, S.A.
(Patria Re) (Mexico). The outlook of these Credit
Ratings (ratings) is stable.

A.M. Best also has affirmed the Long-Term ICR of “bbb” of Patria Re’s
ultimate parent, Peña Verde, S.A.B. (Peña Verde) (Mexico). The
outlook of this rating is stable. Per A.M. Best’s methodology on
insurance holding companies, Peña Verde’s rating reflects a standard
notching from Patria Re’s Long-Term ICR and is in line with companies of
the same rating level.

The ratings reflect Patria Re’s excellent risk-adjusted capitalization,
low underwriting leverage, comprehensive enterprise risk management
infrastructure, expansive knowledge of its core markets in Latin
America, as well as the company’s strong liquidity metrics and the
initial implementation of its overseas expansion.

Offsetting these strengths is Patria Re’s relatively important
participation of equities in its investment portfolio, which could add
volatility to the company’s financial products. In addition, the company
is expanding outside its niche market, which poses additional risks in
terms of underwriting and implementation of such expansion strategy.

Patria Re has established a solid niche position in Mexico and Latin
America, which allows it to accept profitable business selectively,
while maintaining a diversified product portfolio tailored to specific
markets. This strategy has resulted in consistently favorable
underwriting results over the years and has contributed to Patria Re’s
enhanced risk-adjusted capitalization. The company maintains excellent
capitalization levels, as measured by Best’s Capital Adequacy Ratio
(BCAR), reinforced by a well-balanced reinsurance program placed among
counterparties with a strong security level to support its operations.
Furthermore, the company’s underwriting leverage has remained at
conservative levels for the past five years.

At year-end 2015, the company registered a return on equity and return
on assets of 8.5% and 5%, respectively, mainly supported by improved
underwriting results and unrealized gains in its investment portfolio.
While claims from catastrophe events, such as the earthquake in Ecuador
and Hurricane Earl have pressured the company’s operating performance in
2016, reflected in higher combined ratios, A.M. Best expects these
metrics to decrease at the end of the year due to reinsurance recoveries
and as a reflection of its strong underwriting practices.

While the company holds a larger percentage of its investment portfolio
in equities in comparison with other peers, which could lead to higher
volatility in its financial income, Patria Re historically has
maintained such positions and keeps a long-term investment horizon for
these assets. Given its prudent reserve practices and strong capital
position, the company has not been required to materialize any
unrealized losses from any of these investments to cover unusual
deviations in claims arising from the catastrophic nature of its

In 2015, Patria Re’s risk profile shifted as a result of its assumption
of exposures outside of its core markets through Patria Corporate Member
Ltd (Lloyd’s syndicate) and Patria Re Marketing Services Ltd in
the U.K., and Patria Re Servicios, S.A. in Chile. While this affords the
company a planned geographic diversification, it is expanding into
highly competitive and mature markets. Furthermore, the reinsurance
sector as a whole faces significant pricing pressure in a low interest
rate cycle, with third-party capital taking a larger share of property
catastrophe business and primary companies retaining more business.

A.M. Best considers Patria Re to be well-positioned at its current
rating level. Factors that could lead to positive rating actions include
continued strong underwriting and overall results in conjunction with
the maintenance of excellent risk-adjusted capitalization, improvements
in the performance of its investment portfolio, as well as continued and
successful operation of its overseas expansion. Factors that may lead to
negative rating actions include a sustained decline in underwriting
profitability, significant deterioration in risk-adjusted capitalization
and unsuccessful operations of the company’s overseas expansion plans.

The methodology used in determining these ratings is Best’s Credit
Rating Methodology, which provides a comprehensive explanation of A.M.
Best’s rating process and contains the different rating criteria
employed in the rating process. Best’s Credit Rating Methodology can be
found at www.ambest.com/ratings/methodology.

Key insurance criteria reports utilized:

  • A.M. Best’s Ratings On a National Scale (Version Sept. 5, 2014)
  • Analyzing Insurance Holding Company Liquidity (Version March 25, 2013)
  • Catastrophe Analysis in A.M. Best Ratings (Version Nov. 3, 2011)
  • Evaluating Country Risk (Version May 2, 2012)
  • Insurance Holding Company and Debt Ratings (Version May 6, 2014)
  • Rating Members of Insurance Groups (Version Dec. 15, 2014)
  • Risk Management and the Rating Process for Insurance Companies
    (Version April 2, 2013)
  • Understanding Universal BCAR (Version April 28, 2016)

View a general description of the policies
and procedures
used to determine credit ratings. For information on
the meaning of ratings, structure, voting and the committee process for
determining the ratings and monitoring activities, please refer to “Understanding
Best’s Credit Ratings

  • Previous Rating Date: Oct. 7, 2015
  • Date of Financial Data Used: Sept. 30, 2016

This press release relates to rating(s) that have been published on
A.M. Best’s website. For additional rating information relating to the
release and pertinent disclosures, including details of the office
responsible for issuing each of the individual ratings referenced in
this release, please see A.M. Best’s
Rating Activity
web page.

A.M. Best does not validate or certify the information provided by
the client in order to issue a credit rating.

While the information obtained from the material source(s) is
believed to be reliable, its accuracy is not guaranteed. A.M. Best does
not audit the company’s financial records or statements, or otherwise
independently verify the accuracy and reliability of the information;
therefore, A.M. Best cannot attest as to the accuracy of the information

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not statements of fact. A.M. Best is not an Investment Advisor, does not
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A.M. Best
Salvador Smith, +52 55 1102 2720, ext. 109
Financial Analyst

Sharkey, +1 908-439-2200, ext. 5159

Manager, Public Relations
Novelo, +52 55 1102 2720, ext. 107

Director, Analytics
Peavy, +1 908-439-2200, ext. 5644

Director, Public Relations