Fitch Rates Sancor Uruguay's Insurer Financial Strength Rating 'B+'; Outlook Stable

Fitch Ratings has assigned a 'B+' Insurer Financial Strength (IFS) rating to Sancor Seguros S.A. (Sancor Uruguay). The Rating Outlook is Stable.

KEY RATING DRIVERS

Sancor Uruguay's ratings reflects the company's small position within the Uruguayan insurance industry, a narrow product focus concentrated in auto insurance, and higher operating leverage compared to peers.

As of December 2015, Sancor Uruguay is positioned as a small company (3.1% market share) in a highly competitive market, which is dominated by the state owned insurance company, Banco de Seguros del Estado (BSE). Sancor Uruguay's bulk of gross written premiums (GWP) correspond to vehicle insurance, (53.4% of gross written premiums and 73.9% of accrued retained premium).

Sancor Uruguay's leverage (liabilities/equity) presented a significant increase during 2015, reaching 3.1x from 2.5x showed last year, affected by heavy losses for the year and sustained business growth. However, capital levels continue to exceed solvency and regulatory capital requirements. Similar tendency was showed by the operating leverage (accrued retained premium on equity) increased up to 2.9x.

In Fitch's view, Sancor Uruguay benefits from operational synergies as part of Grupo Sancor Seguros, a leader in vehicle insurance and occupational hazards in Argentina.

As of December 2015, Sancor Uruguay recorded UYU65.6 million losses, affecting its profitability ratios such as return on average equity and return on average assets (ROAE -25.3% and ROAA -1.7%). The negative net income was the result of an increase in vehicle net losses, due to a greater reserve variation in a highly competitive segment.

The investment portfolio remains concentrated in fixed income securities with an adequate credit risk profile, mainly composed by Uruguayan government bonds and Uruguayan financial institutions. The short-term duration of its investments remains aligned to liabilities, and presents as of December 2015 an indicator of liquidity of 0.97x.

Reinsurance coverage includes a combination of proportional and non-proportional protection defined by business lines, and is provided by a diversified pool of reinsurers, adequately limiting counterparty risk concentrations. As of December 2015, Sancor Uruguay maximum claims exposure was equivalent to 5.8% of its equity.

The company retains 100% of the risks of their main branch (vehicles), while cession level remain above 50% in branches with higher severity exposure such as property, credit, and agricultural insurance.

RATING SENSITIVITIES

Key Upgrade Triggers: Factors that may lead to an upgrade include a more diversified premium income mix, sustained improvement of its main performance ratios, especially a combined ratio consistently below 100%, and awhile leverage ratio that falls below 3x.

Key Downgrade Triggers: Factors that may lead to a downgrade include a sustained leverage ratio above 4x, increase premium concentration in motor vehicle insurance, or sustained operative losses, especially a combined materially above 100%.

Additional information is available at 'www.fitchratings.com'

Applicable Criteria

Insurance Rating Methodology (pub. 16 Sep 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=871172

Additional Disclosures

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Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1003669

Endorsement Policy

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