AM Best has upgraded the Financial Strength Rating (FSR) to A- (Excellent) from B++ (Good) and the Long-Term Issuer Credit Rating (Long-Term ICR) to "a-" from "bbb+" of La Colonial, S.A. – Compañía de Seguros (La Colonial) (Santo Domingo, Dominican Republic). The outlook of these Credit Ratings (ratings) has been revised to stable from positive.
The ratings reflect La Colonial’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.
The rating upgrades reflect the continuous strengthening of La Colonial’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), mainly as a result of positive bottom-line results, and also acknowledge the skills of the underwriting team to face the potential challenges of a harsher competition. Partially offsetting these positive rating factors is the competitive environment in the Dominican Republic, exacerbated by the slowdown in global economic activity because of the COVID-19 pandemic.
La Colonial is the fifth-largest insurance company in the Dominican Republic, with an 8% market share as of September 2019. The company has maintained its leading position in the Dominican Republic despite changing market dynamics, which include the continuous inflow of new health insurance premiums to the system from new participants. La Colonial operates as a multiline insurer, with 79% of its portfolio directed to property/casualty lines, based on gross written premiums, with accidents and health and life insurance making up 17% and 4%, respectively.
In 2019, the company continued to present a combined ratio of below 100%, as a result of a less volatile loss ratio for the property/casualty business, and a continuation of expense efficiency. For 2020 and onward, operating efficiencies might be harder to sustain; however, AM Best considers La Colonial’s management team to be well-prepared to maintain solid profitability and growth to support its operation.
La Colonial’s risk-adjusted capitalization remains at the strongest level, as measured by Best’s Capital Adequacy Ratio, supported adequately by a comprehensive reinsurance program that mitigates the potential impact from regional natural disasters on the company’s results. These characteristics are well-reflected in its solvency and capitalization metrics and its excellent market position. Looking forward, AM Best expects the company to continue performing with premium sufficiency, driven by lower technical costs in the medium term.
Positive rating actions could occur if the company continues to improve its underwriting performance by achieving greater efficiency and consolidating its positive trend in operating performance, while at the same time strengthening its capital base. Factors that could lead to negative rating actions include erosion of the company’s capital base, either as a result of negative operating performance or changes in the macroeconomic environment that adversely impact the operations of the company. Additionally, any major changes in La Colonial’s capital base, including significant dividends or capital outflows, which diminish AM Best’s view of the company’s risk-adjusted capitalization, also could result in negative rating actions.
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Olga Rubo, FRM
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