A.M. Best Affirms Credit Ratings of Solunion Seguros de Crédito, Compañía Internacional de Seguros y Reaseguros S.A.. The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Solunion’s strategic importance to its joint shareholders as their exclusive writer of trade credit insurance business in Spain and Latin America (excluding Brazil). In addition, Solunion benefits from substantial parental support in the form of a combined 90% quota share arrangement and excess of loss protection, along with its shareholders’ commitment to sustain its strong capital position.
Solunion maintains excellent consolidated risk-adjusted capitalisation, with significant capital buffers to cushion against the effects of a heightened insolvency environment, owing to its large capital base and low net underwriting strategy. The group employs a prudent reserving approach, and conservative investment and reinsurance strategies to support its strong balance sheet. In 2016, there was a 6.1% increase in shareholders’ funds to EUR 105 million supported by internal capital generation from improving profitability and the absence of any dividends payments. A.M. Best expects Solunion to maintain a prudent capital management strategy to support its expansion plans.
The group’s operating performance is improving, with a third year of pre-tax profits of EUR 11.0 million in 2016 (2015: EUR 9.3 million). In line with expectations, results in the first half of 2017 also remain positive, in spite of the pressure on premium income owing to the adverse effects of the depreciation of local currencies in Latin America relative to the Euro and the increasingly competitive operating conditions placing downward pressures on premium rates. A.M. Best expects Solunion’s prospective profitability to be supported by better economic conditions in Spain (which accounted for approximately 75% of gross premium income in 2016), the continued cautious expansion into new markets, as well as improved quality of the underwriting portfolio supported by Euler Hermes’ robust risk underwriting framework.
Solunion’s solid competitive profile is enhanced by the excellent business profiles of its highly rated parents. The group is able to leverage the expertise and capabilities of Euler Hermes, a leading global trade credit insurer, whilst accessing Mapfre’s wide-spread and established distribution channels in its target markets, particularly in Latin America. Although the benefits of the group’s affiliation with its high-profile shareholders are recognised, A.M. Best believes that Solunion will face challenges in executing its ambitious growth strategy. These include the competitive dominance of larger market participants, the impact of the increasingly softening conditions on rates, due to the reduction in the number of insolvencies in improving economies such as Spain, and exposure to the high country risk of its target markets, which can result in sudden and unexpected changes to Solunion’s operating environment.
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