AM Best Affirms Credit Ratings of Reunion Re Compañia de Reaseguros S.A.

AM Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb” (Good) of Reunion Re Compañia de Reaseguros S.A. (Reunion Re) (Argentina). The outlook of these Credit Ratings (ratings) is stable.

These ratings reflect Reunion Re’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.

Reunion Re’s balance sheet strength remains underpinned by its risk-adjusted capitalization being at the strongest level, as measured by Best´s Capital Adequacy Ratio (BCAR). The ratings also reflect the company’s consistent profitability despite a volatile economic environment. Other positive rating factors include the company’s well-structured and diversified reinsurance program, its seasoned management team and synergies provided by its main shareholder. Partially offsetting these positive rating factors is the historic volatility in Reunion Re’s bottom line results due to operating in Argentina´s challenging macroeconomic environment and fluctuations in the company´s retrocession leverage stemming from reinsurance recoverables and ceded premium. Reunion Re initiated operations in Bueno Aires, Argentina in 2012, and ranks among the country’s top reinsurance companies based on premium market share. The company operates through a network of brokers and direct distribution channels mainly in Argentina, but also has a presence in South and Central America.

Historically, the company has increased capital at a 70% compound annual growth rate supported by positive bottom-line results; this is driven by a consistent inflow of underwriting and investment income, which reflects the management team’s market knowledge and well-rounded experience in Argentina. A well-balanced reinsurance program placed among counterparties with a strong credit quality level also reinforces the company’s risk-adjusted capitalization and diminishes its credit risk exposure. In AM Best´s view, current capital levels are pressured by the credit quality of Reunion Re´s investment portfolio given the prevailing macroeconomic uncertainty. In addition, spikes in the volume of reinsurance recoverables and ceded premium also pressure the company’s capital adequacy, which underly its current ratings.

In AM Best’s view, the reinsurer has shown disciplined underwriting in a highly volatile market that is driven by inflation and foreign exchange rate pressures. Historically, Reunion Re has managed to maintain overall profitability despite the negative effects derived from non-recurring adjustments in premium reporting, capital controls and public debt restructuring. By year-end 2022, the company reported negative bottom line results, mainly driven by investment losses that affected the overall insurance industry that resulted from the spread between high inflation and currency devaluation rates. Nonetheless, Reunion Re recovered in 2023, supported by underwriting profits and reflected in a 95.7% combined ratio, in conjunction with a 6.2% investment yield. AM Best expects an improvement trend in financial products to be maintained as Argentina’s central bank (BCRA) accelerates the peso’s devaluation as a hedge against inflation.

Factors that could lead to negative rating actions include a deterioration in Reunion Re’s risk-adjusted capitalization to a level that no longer supports the ratings under current macroeconomic risks, which could pressure AM Best’s view of the company’s balance sheet strength level. Additionally, aggressive premium growth resulting from the company’s geographic expansion that pressures capital and operating performance to a level that no longer supports the assessment could also lead to negative rating actions. While highly unlikely, positive rating actions could occur if capital base expands to levels supportive of a strongest balance sheet strength assessment.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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