OREANDA-NEWS. Fitch Ratings has affirmed the Local currency Insurer Financial Strength (IFS) rating of Rimac Seguros, Reaseguros y Subsidiarias (Rimac) at 'BBB'. The Rating Outlook is Stable.

KEY RATING DRIVERS

The affirmation of Rimac's rating reflects the company's leading position in Peru's insurance market as well as its strong balance fundamentals. Rimac also maintains a solid operating performance for its diversified premium mix, benefiting from its large distribution capability, strong brand name and synergies with other Breca group subsidiaries. The company's rating is limited by its concentrated geographical scope in Peru, and increasing leverage.

Rimac is Peru's largest insurance company, boasting a solid leadership position in both non-life and life insurance segments, with 27% of the industry's total retained premiums. Similarly, Rimac's net profits represented 21% of the industry's bottom line as of December 2015.

Leverage continues to be on the rise, reaching 6.3(x) in December 2015 due to the company's growth in the annuity segment, as well as the depreciation in the book value of investments available for sale and derivatives. While leverage has increased, it is still below the industry's local and regional average. Fitch views shareholders' commitment to the company positively, which is reflected in continued capital injections that have supported the company's growth.

The company's net income largely depends on the stability and volume of its financial income. The latter reached PEN 367 million (USD 108 million) as of December 2015, in line with previous years' results. ROAA and ROAE were 2.3% and 17.5%, respectively, as a result of the company's adequate operating performance reflected in both its combined (105.2%) and operating (91.3%) ratios.

The company's claims ratios remain under control, reflecting adequate underwriting and pricing standards. As of December 2015, the overall loss ratio stood at 53%, higher than the insurance industry (44%). By segment, the loss ratios were a competitive 39% for P&C, 52% for health, and 24% for life insurance.

The entity's investment portfolio remains adequate and concentrated in fixed income securities, primarily local and foreign corporate bonds, as well as sovereign bonds. The portfolio's credit risk reflects the adequate credit quality and liquidity of its instruments.

The company performs various risk scenarios tests, presenting a maximum expected loss for its investment portfolio of PEN 163 million and interest rate risk exposure of PEN346 million, equivalent to 12% and 26% of its equity.

Despite insuring large risks, equity exposure to catastrophic events is limited thanks to a diversified pool of reinsurers that enjoy high credit quality. As of December 2015, catastrophic exposure represented 2.6% of the company's equity.

RATING SENSITIVITIES

Key Upgrade Triggers: Factors that may lead to an upgrade include a sustained improvement of its main performance ratios, especially an operating ratio below its peers while maintaining and stable leverage.

Key Downgrade Triggers: Factors that may lead to a downgrade include a sustained leverage above its peers, higher credit-risk investment profile or a long period deterioration of main underwriting performance, mainly in the non-life segment.