Fitch Ratings has upgraded Maxseguros EPM Limited's insurer financial strength (IFS) rating to “BBB+” from “BBB”.
Maxseguros's rating action follows the upgrade of Empresas Publicas de Medellin E.S.P. (EPM) local currency Issuer Default Rating (IDR) to “BBB+”.
Maxseguros's rating is equalised to the rating of its shareholder, EPM.
Fitch has stated that it considers Maxseguros a core subsidiary of EPM based on the methodology for rating captive insurance companies.
Maxseguros's rating also reflects its “good operating performance, strong capitalisation and liquidity levels, and adequate reinsurance protection”, according to the agency.
Fitch also stated that, as a core subsidiary of EPM, Maxseguros “owes much” to its strategic importance in managing the risks and structuring the insurance coverage of Grupo EPM.
The support of the shareholder is evidenced by the formal support in managing the investment portfolio of the captive; the provision of resources for the optimal operation of the reinsurance company; and the transference of strong corporate governance practices.
Maxseguros' profitability is at adequate levels. Currently the reinsurer doesn't retain risks, because of that the net income comes from the ceding commissions and the management fee agreed with EPM for the assistance in the placement of the reinsurance programme.
At 30 September 2014 Maxseguros reported a net income of $1.8 million, 26 percent lower than the $2.6 million it had at the same point in 2013.
Fitch has attributed this performance to lower ceding commissions due to the renewal seasonality of the contracts and costs' optimisation in the renewal of the property damage coverage of EPM and subsidiaries.
Negative changes to EPM's ratings or to its ability and willingness to provide support could result in a downgrade for Maxseguros. However, Fitch has commented that it views the latter as unlikely due to its captive reinsurer nature.
