OREANDA-NEWS. Fitch Ratings has assigned Proteccion Agropecuaria Compania de Seguros, S.A. (Proagro) an International Insurer Financial Strength rating (IFS) of 'BBB-' and a National Scale IFS rating of 'AA-(mex)'. The Rating Outlook is Stable.

KEY RATING DRIVERS

The ratings were assigned based on a stand-alone approach which means the company is rated strictly based on its individual financial profile. In this case, Proagro's individual assessment becomes the IFS rating. Fitch's decision to use this approach is based on the lack of data with which to determine the stakeholders' credit profiles in order to provide support whenever the insurance company is under pressure. Also, external barriers may exist that restrict capital/resource transfer among subsidiaries.

The ratings are based on balance sheet, operating performance and other key quantitative strengths relative to specific business sectors, peers, and industry averages, in all of which Proagro historically has had a stable performance. Fitch views qualitative factors such as solid statistics inputs for underwriting and sector experience positively. The current rating is constrained by the company's narrow business scope and the challenges of developing in a highly volatile sector dependent on weather conditions and federal catastrophic programs.

Proagro is a specialized company dedicated to agribusiness risk protection mainly in Mexico, but also with a growing share of premiums outside its home country. Proagro's premium portfolio is concentrated in federal programs which may be unpredictable and depend on political decisions. Catastrophic programs with the Mexican government represent 60% of its total portfolio as of 2014; nevertheless, the company's strategy is open to diversification.

Proagro's average liabilities-to-equity ratio was 2.5x in 2010-2014, which is the result of the Mexico's stringent insurance regulation, its conservative dividend policy, and its internal resource generation. The company's current regulatory capital exceeds the solvency capital required by local regulation by 1.95x; the solvency margin is 49% of equity.

Proagro has been able to maintain loss ratios below both the market and sector's average, aided by its appropriate underwriting policies and statistical input for decisionmaking. Proagro's earnings depend on the seasonality of its business, low federal catastrophic programs and high retention, which may lead the company to a combined ratio of 65.1% as of December 2014 and to 117.4% as of June 2015. Nonetheless, except for June 2015, the company has had positive net income. Business concentration and seasonality may challenge Proagro's key operating metrics.

Proagro has had a concentration in federal bonds of 98% since 2013; the five-year average is 86%. Company premiums receivable divided by total assets can change, depending on the season (4% as of June 2015 compared to 16% in December 2014) but liquid assets-to-total technical reserves stood at 1.13x as a five-year average, a ratio at the upper end of its peer's ratios.

Proagro's retention rate of 58.9% falls below the Mexican insurance industry ratio of 81.9% and also below the agricultural sector's 68.3%. However, in Fitch's opinion, the company's retention rate is consistent with its strategy and market positioning. Proagro's reinsurance pool has good credit quality; Munchener is the main participant in Mexican market and participates with 47% of total responsibilities. Scenario analysis performed by Fitch resulted in less than 10% risk exposure, which may be reached by Proagro if, for example, a whole Mexican state experienced a catastrophic event.

RATING SENSITIVITIES
Proagro's ratings have limited upside potential in the short term given its narrow profile and its relevant catastrophic exposures. An increase above 100% of its year-end combined ratio and recurrent high operating catastrophic and financial losses that undermine Proagro's profitability and equity base may trigger a negative rating action for the company.

Fitch has assigned the following ratings:

Proteccion Agropecuaria Compania de Seguros, S.A
--Insurer Financial Strength 'BBB-';
--National Insurance Financial Strength 'AA-(mex)'.