OREANDA-NEWS. July 14, 2015. Fitch Ratings has affirmed Reaseguradora Patria S.A.'s (Patria) International Insurer Financial Strength rating (IFS) at 'A-' and its National Scale IFS rating at 'AAA(mex)'. The Rating Outlook is Stable.

KEY RATING DRIVERS

The ratings are based on balance sheet, operating performance and other key quantitative strengths which Patria historically has performed better than its peers. Fitch positively views qualitative factors, such as corporate governance and management, and its wide product and market strategy. The current rating is constrained by the company's modest size relative to global reinsurance competitors and above average exposure to variable income investments.

Patria's operating leverage was 1.3x in 2014 an increase from prior years but still consistent with rating expectations. Strong capitalization is the result of the stringent Mexican insurance regulation, its conservative dividend policy and its risk-based capital approach. Patria's risk management model is advanced and has proved effective in monitoring and mitigating the company's risks.

Patria has been able to maintain low loss ratios by its appropriate underwriting policies and pricing techniques, its low participation in high-frequency business lines (auto/health), good internal claims control and its conservative retrocession protection. However, the company's loss ratio increased in 2014 to 51.5%, which also resulted in a combined ratio of 97.2% due to anticipated reserving changes from new Mexican regulation, a higher level of catastrophe losses and a large surety claim. These results compare to the prior five year average of 46.4% and 90.5%, respectively. Fitch expects underwriting profitability to return to previous levels.

The company's net financial income benefited in 2014 from the positive trend in the market value of its investment portfolio, which rose 303%. This was mainly driven by its position in government bonds (56% of total portfolio) which drove up the average return to 4.34%.

Patria's premium profile is moderately concentrated by client. The largest 10 clients represented 34.2% of total premiums in 2014, but none represented more than 5.4%.

Patria is not dependent on retrocession but rather buys its retro protections to reduce volatility when market pricing is attractive. The company's geographically diversified business profile, conservative underwriting and reserving policies allow the company to manage high retention levels. The company's catastrophic reserves cover 41.4x the priority under its catastrophic retrocession contract.

RATING SENSITIVITIES
Patria's ratings have limited upside potential in the short term given its relative small size in a market where large global players manage the largest share of the reinsurance market. Operating leverage ratio above 1.5x and recurrent high operating catastrophic and financial losses that undermine Patria's profitability and equity base may trigger a negative rating action. Negative movements on Mexico's sovereign rating may trigger a review of Patria's rating given its high exposure to the sovereign, even though it's not considered a likely scenario at the moment.

FULL LIST OF RATING ACTIONS

Fitch has affirmed the ratings for Reaseguradora Patria S.A. as follows:

--IFS at 'A-';
--National IFS at 'AAA(mex)'.

The Rating Outlook is Stable.