Saturday, June 15, 2024

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Colombian municipal captive has Excellent ratings affirmed

AM Best has affirmed the financial strength rating of A- (Excellent) and the long-term issuer credit rating of “a-” (Excellent) of Bermuda-domiciled Maxseguros EPM Ltd. The outlook for the ratings is stable.

Maxseguros is the single parent captive wholly owned by Empresas Públicas de Medellín E.S.P. (EPM), which is owned by the Colombian municipality of Medellín.

The captive provides reinsurance to the EPM group, covering property damage and business interruption, commercial crime, cyber risk, directors and officers, errors and omissions and general liability exposures.

The ratings reflect Maxseguros’ balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.

The AM Best ratings also reflect Maxseguros’ risk-adjusted capitalisation being at the strongest level, as measured by AM Best’s capital adequacy ratio (BCAR), and supported by a comprehensive reinsurance programme, coupled with a conservative investment policy and limited premium risk exposure.

These positive rating factors are offset partially by EPM’s “substantial” financial leverage and Maxseguros’ limited business and market scope, which is mitigated by the company’s stable results, favourable geographic spread of risk and the history of Maxseguros’ growing surplus position.

While Maxseguros depends on reinsurance, the company’s well-set underwriting and technical capabilities have allowed it to position itself as a key participant within EPM’s reinsurance panel.

AM Best said positive rating actions could take place if Maxseguros’ operating performance reflects a stable, upward trend of profitable underwriting and investment results that improve its metrics to compare favourably with a strong assessment level.

Negative rating actions could occur if Maxseguros’ operating performance deteriorates due to increased retentions, to a point that it is no longer supportive of the ratings, and consequently, causes erosion in the company’s capital base.

“Negative rating actions could also arise if there is a material shift in the risk profile or role within EPM that undermines the stability of the company, including increased activity in cash outflows to the parent,” the ratings agency said.