AM Best Affirms Credit Ratings of Instituto Nacional de Seguros

AM Best has affirmed the Financial Strength Rating of A-
(Excellent) and the Long-Term Issuer Credit Rating of “a-” of Instituto
Nacional de Seguros (INS) (San Jose, Costa Rica). The outlook of these
Credit Ratings (ratings) remains positive.

The ratings reflect INS’s balance sheet strength, which AM Best
categorizes as strongest, as well as its adequate operating performance,
neutral business profile and appropriate enterprise risk management
(ERM). The positive outlook was maintained due to the still favorable
operating performance metrics posted in 2018.

INS’ capitalization level of strongest is supported by a comprehensive
and adequate reinsurance program, good operating performance and its
position as the leading insurer in Costa Rica. The assessment of its
business profile considers INS’ market characteristics derived from the
country’s Insurance Law of 2008, including its robust market share and
the guarantee provided by the Costa Rican government to support INS’
domestic obligations.

INS is Costa Rica’s largest insurer with a market share of 72% as of
December 2018, which has decreased due to aggressive growth in voluntary
products from specific market participants. The company has exclusivity
on underwriting compulsory workers’ compensation and mandatory auto
insurance. INS’ compulsory premium segment represents 34% of its
business portfolio and 25% of the industry’s total premiums written.

The positive outlooks on INS’ ratings reflect the still strong operating
performance metrics posted in 2018, despite its deterioration in
comparison with 2017 as shown in a larger loss and combined ratio. As of
December 2018, INS’ business slowed as economic activity grew less than
in previous years; this led to a deterioration of the company’s
underwriting metrics compared with 2017, nevertheless, these results
remained strong and produced positive net income. The resolution of the
positive outlook will depend on the operating performance results during
2019; if these deteriorate further, the positive outlook could revert to
stable.

Investment income, based on a conservative investment portfolio, has
remained supportive of the company’s performance, favored by interest
rates and foreign exchange rates. Net income stood at USD 89.5 million,
providing a solid growth for its capital base, despite the compulsory
25% dividend paid to the government and a larger reserve creation
derived from the favorable performance of the compulsory workers’
compensation segment.

AM Best expects INS to continue improving and consolidating its business
guidelines by implementing its geographical diversification strategy
progressively, which should offset increased competition in the
voluntary segments. The company is in a good position to maintain its
strong risk-adjusted capitalization, as measured by Best's Capital
Adequacy Ratio, due to its good profitability and ERM practices, and
adequate reinsurance with highly rated international reinsurers, which
provides a buffer for variations in claim severity and catastrophic
events.

Positive rating movements could occur if INS is able to improve or
maintain its underwriting performance and operating efficiency while
continuing to pursue further diversification of its revenue, improving
its return metrics and maintaining its strong capitalization. Negative
rating actions could occur if technical results deteriorate or there is
a reduction in net income, or any loss that significantly affects the
company’s profitability and capital generation.

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 Understanding
Best’s Credit Ratings. For information on the proper media
use of Best’s Credit Ratings and AM Best press releases, please view Guide
for Media - Proper Use of Best’s Credit Ratings and AM Best Rating
Action Press Releases.

AM Best is a global rating agency and information provider with a
unique focus on the insurance industry. Visit www.ambest.com
for more information.

Copyright © 2019 by A.M. Best Rating Services, Inc. and/or its
affiliates. ALL RIGHTS RESERVED.

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