OREANDA-NEWS. April 04, 2016. Fitch Ratings has maintained on Rating Watch Negative the Insurer Financial Strength ratings of 'BB' on the International scale and 'AAA(slv)' on the National scale of Seguros e Inversiones y Filial, S.A. (SISA) and SISA Vida S.A., Seguros de Personas SISA's parent company is Citigroup, Inc.

This rating action is based on the sale agreement between Citigroup and Terra Group on the insurance operations, consumer banking and commercial banking operations in El Salvador. The transaction is subject to approval by regulators of El Salvador.

Terra Group (not rated by Fitch) is a conglomerate based in Honduras that participates in several key industry sectors of Central American economies as well as in some South American countries. Terra Group has a track record of 37 years with investments in El Salvador since 2008, but this will be its first incursion into the financial and insurance sector.

KEY RATING FACTORS

According to Fitch's Financial Groups Criteria, the current ratings are based on the potential support that SISA and its subsidiary would receive from its shareholders if needed. The agency believes that Citigroup (Fitch international scale rating 'A'/Outlook Stable) has the financial capacity to support these subsidiaries. In Fitch's view, support from Citigroup will be forthcoming until the transaction is approved by regulators.

SISA's technical profitability is wide in relation to its local and regional peers. As of Dec. 31, 2015, SISA registered a combined ratio of 80% and operating ratio of 73% versus 99% and 93% respectively, of the average industry. This good performance reflects the benevolence of the underwritten risks and business mix.

By the end of 2016 profitability of the insurance company may be pressured by lower written premiums and soft market conditions, but Fitch expects it to remain at levels close to the industry, given SISA's decision to maintain adequate subscription and pricing policies.

Capitalization levels are adequate. Capital quality is good, and leverage ratios are consistent with business profile, even at the superior court of the market. As Dec. 31 2015, operating and financial leverage were 1.5x versus 1.1x and 1.3x times of the market. These ratios were affected by payout of dividends for USD25 million in 2015.

In the first quarter of 2016, leverage ratios temporarily will increase due to a similar pay out of dividends, but these ratios may return to levels close to the market average.

Liquidity levels are ample. The investment portfolio is placed in fixed income securities with adequate credit quality. Investment portfolio is comprised by sovereign securities and deposits in domestic banks; all are rated non-investment grade. The reserves' coverage over liquid assets is ample and stands at the upper level of the local market and its peers in the region, 2.4x. at Dec. 31, 2015.

RATINGS SENSITIVITIES

Fitch's decision to place SISA and its subsidiary on Rating Watch Negative indicates that the companies' ratings will no longer benefit from the financial strength of Citigroup once the transaction is completed in the following months. Upon the completion of the acquisition by Terra Group, SISA will be rated strictly on the basis of their own financial profiles.

Fitch has taken the following rating actions on Seguros e Inversiones y Filial and Sisa Vida:

--Fitch National scale IFS rating of 'AAA(slv)' maintained on
Rating Watch Negative;
--Fitch International scale IFS rating of 'BB' maintained on Rating Watch Negative.

In applying Fitch's insurance criteria with respect to the impact of ownership on Seguro's Inbursa rating, Fitch considered how ratings would theoretically be impacted under Fitch's bank support criteria. Fitch's insurance criteria with respect to ownership is principles-based, and the noted bank criteria was used to help inform Fitch's judgment in applying those principles.