AM Best Affirms Credit Ratings of Abarca - Companhia de Seguros S.A.

AM Best has affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” of Abarca - Companhia de Seguros S.A. (Abarca) (Portugal). The outlook of these Credit Ratings (ratings) remains stable.

The ratings reflect Abarca’s balance sheet strength, which AM Best categorises as strong, as well as its adequate operating performance, limited business profile and marginal enterprise risk management.

Based on Abarca’s business plan, risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), is projected to remain at the strongest level through the start-up phase, supported by internal capital generation. The company’s balance sheet strength is further supported by a conservative and liquid investment portfolio, as all investments are held in cash and deposits. Offsetting factors include Abarca’s high dependence on reinsurance, uncertainty surrounding the sufficiency of loss reserves in the absence of loss history, and the company’s small capital base, which has the potential to exacerbate the sensitivity of its solvency position.

The adequate operating performance assessment is based on AM Best’s expectation of stable prospective earnings given current market conditions and Abarca’s extensive reinsurance programme. As of third quarter 2019, the company has started to generate positive net results partly stemming from the release of an unexpired risk reserve built up during its first years of operation. AM Best anticipates that technical results will be dependent on the economic conditions in Spain and Portugal, which will dictate the claims experience resulting from insolvencies in the market. AM Best notes that the company has the flexibility to actively manage its portfolio and take mitigating actions should the creditworthiness of a policyholder diminish.

Abarca’s limited business profile assessment reflects its position as a small monoline insurer, focusing entirely on surety insurance in Spain and Portugal. The company has a limited market profile in Spain, where it generates most of its revenue, and a leading position in the smaller Portuguese market. Offsetting rating factors include the company’s geographic and product concentrations, amplified by the highly competitive nature of Spain’s surety market.

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 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 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 New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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