PACÍFICO COMPAÑÍA DE SEGUROS Y REASEGUROS
Fitch Ratings has affirmed
The Rating Outlook is Stable.
The affirmation is based on Pacificos' solid market share, which provides competitive advantages within the local market. The affirmation reflects the company's positive results and the organic strengthening of its equity, which allows for the maintenance of leverage indicators in line with rating expectations. The rating also incorporates the Peruvian insurance industry's operating environment, as well as the country's sovereign risk, which limits the risk assessment of the insurer's investments.
Key Rating Drivers
Solid Business Profile: Pacifico maintains a solid and stable market position that provides competitive advantages over other insurers in
Favorable Profitability Indicators: Pacifico's profitability indicators improved for the second consecutive year in 2023 following a sharp decline in 2021 due to the Covid pandemic. This recovery suggests that credit factors have stabilized and that performance is likely to remain positive in the medium term. The company's technical performance and net profitability indicators exceed the requirements for the current rating level; pricing adjustments in 2023 reduced claims ratios and investment results continue to surpass the portfolio's historical performance. Fitch anticipates a stabilization in profitability levels in 2024 to levels more moderate than in 2023 but still aligned with the profitability credit factor score.
Declining Leverage: Leverage indicators are in line with current rating expectations. As compared to year-end 2022, core indicators decreased, mainly due to organic equity strengthening that offset operational increases. Fitch incorporates the dividend distribution policy for 2024 into the analysis, which would be higher than the average of the previous three years, although the indicators should remain within the ranges recorded in the current period. Fitch's Prism model scores are at the higher end of the 'Strong' category, which is still in line with the credit factor score.
Investment Evaluation Capped by Sovereign Risk: Pacifico reports a diversified investment portfolio aligned with its liability duration and currency hedging objectives. It is broadly diversified by product type and markets, with low exposure to risky assets. Despite this, exposure to Peruvian government securities remains above 100% of capital, implying a factor score capped at the sovereign risk level.
Ample ALM Indicators: Despite the temporary difficulties in obtaining long-term investment instruments in the Peruvian market, Pacifico has maintained favorable ALM indicators. The duration gap between assets and liabilities improved in relation to the 2022 period, largely due to a reduction in the duration of liabilities, while assets maintained the downward trend affected by the local market conditions. Liquidity indicators high for the credit factor score and are ample to meet the needs of the business.
Moderate Catastrophe Risk Exposure: The company has limited exposure to counterparty risk, with retention levels remaining above 80% of gross premiums written (GPW). Exposure to catastrophe risk is offset through nonproportional reinsurance contracts, with internationally recognized entities with an average Issuer Default Rating above 'BBB+' and with net exposure to a catastrophic event representing less than 1% of equity.
RATING SENSITIVITIES
Improvements in Fitch's view of the industry profile and operating environment (IPOE);
ROE below 10% and combined ratio higher than 111%;
Deterioration in the Prism model assessment to a category below 'Strong' for a prolonged period of time.
A significant deterioration in asset risk that affects capitalization assessment;
A sovereign rating downgrade below 'BBB-', affecting the IPOE of
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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