A.M Best has affirmed the financial strength rating of B++ (Good) and the long-term issuer credit rating of “bbb” of BTG Pactual Resseguradora (BTG Re), which is based in Brazil. The outlook of these credit ratings is stable. The ratings reflect BTG Re’s balance sheet strength, which A.M. Best categorised as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management. BTG Re is a local reinsurer in Brazil, operating predominantly in the surety segment, and more recently, in the agricultural segment. The company’s parent, Banco BTG Pactual (BTG Pactual), provided capital support in the past, and continues to provide operational support and risk management capabilities. A.M. Best explained that due to the decrease in interest rates in Brazil, BTG Re has increased the allocation of its investment portfolio to non-rated securities, which ultimately led to a drop in its Best’s Capital Adequacy Ratio (BCAR). The rating firm explained that while they acknowledge that BTG Re’s balance sheet strength assessment is in the very strong range, a downward revision from the assessment of strongest in the previous year, its investment allocations have the potential to weaken BTG Re’s BCAR scores further, subsequently impacting the ratings. Also reflected in the ratings of BTG Re is the impact of the credit profile of BTG Pactual and the challenging but slowly improving macroeconomic environment in Brazil. As a result of the COVID-19 pandemic on the economy, A.M. Best suggested that BTG Pactual has shown consistent improvements in its results and credit strength, which can be seen in its Basel capital adequacy ratio; however, its ratings are limited by the Brazilian sovereign rating. BTG Re maintains solid stand-alone attributes in terms of operating performance, including an extremely low loss ratio, negative expense ratio, and very strong risk-adjusted capitalisation. A.M. Best stated that BTG Re has been able to produce positive overall earnings since inception, driven by underwriting results and investment income. BTG Re also benefits from a solid retrocession programme that mitigates its underwriting exposures; reinsurance retention has been low. Credit analysis of BTG Re benefits from BTG Pactual’s expertise, stemming from its long track record with a portfolio of large companies. BTG Re essentially acts as a captive reinsurer for its sister company, Too Seguros (formerly known as Pan Seguros), which is 51 percent owned by BTG Pactual, and develops and expands its product offerings in the local markets, as well as in other Latin American countries, each with their own market characteristics. In Brazil, the surety market continues to expand with growth anchored in the judicial bond segment, with the long-term perspective of performance bonds bringing incremental demand from much-needed infrastructure projects. More recently, Too Seguros started underwriting in the agricultural line of business, ceding it to BTG Re, which in turn cedes this business to market players. A.M. Best outlined that they will continue to monitor BTG Re’s balance sheet strength, particularly the investment portfolio, operating performance, risk-adjusted capitalisation and the execution of its product and geographic expansion, along with the credit profile of its parent. “The key rating driver that could lead to a positive rating action for BTG Re is the continued improvement of the credit profile of BTG Pactual, supported by a stronger corporate governance framework in the group. Factors that could negatively impact its ratings are the deterioration of its parent’s credit profile or liquidity position, or a decline in the risk-adjusted capitalisation (e.g., increased exposure to non-rated securities),” A.M. Best concluded.
