AM Best revises outlook for Patria Re

AM Best has revised its outlook of Reaseguradora Patria’s (Patria Re) financial strength ratings to positive from stable and affirmed its financial strength rating of A- (Excellent). Patria Re is a Mexico domiciled reinsurer that operates primarily within the Mexican and Latin American markets.

The rating agency said the revised outlook reflects Patria Re’s strong enterprise risk management infrastructure, expansive knowledge of the Latin American market and its outperformance of a peer group of regional reinsurers. The rating affirmations reflect Patria Re’s excellent risk-adjusted capitalisation, consistent overall earnings and strong leverage and liquidity metrics.

Offsetting these strengths are Patria Re's elevated expense structure due to its significant share in proportional contracts, the concentration of equities in its investment portfolio and the company's exposure to frequent and severe catastrophic losses. In addition, Patria Re’s risk profile has shifted in recent years mainly as a result of its exposure to European and Asian risks, AM Best commented.

“As a result of its comprehensive domestic and regional knowledge, Patria Re has established a strong niche position in Mexico and Latin America, which allows it to selectively accept profitable business, while maintaining a diversified product portfolio tailored to specific markets. This strategy has resulted in favorable overall earnings and further bolstered Patria Re’s risk-adjusted capitalisation,” AM Best said.

“While this affords Patria Re additional geographic diversification, it is accepting risks in relatively new markets. AM Best will continue to monitor Patria Re’s experience with these contracts for any adverse developments. Furthermore, reinsurance pricing has begun to deteriorate and could potentially effect rates in Patria Re’s core markets.”

The rating agency added that positive rating triggers include continued strong underwriting performance and overall profitability and/or an upgrading of Mexico's country risk tier rating. Factors that may lead to negative rating actions include an outsized catastrophic loss or a sustained decline in underwriting profitability, significant deterioration in risk-adjusted capitalisation and/or a downgrading of Mexico's country risk tier rating.