AM Best has upgraded the Financial Strength Rating to A (Excellent) from A- (Excellent) and the Long-Term Issuer Credit Ratings to “a” (Excellent) from “a-” (Excellent) of Junto Resseguros S.A. (Junto Re) and Junto Seguros S.A. (Junto Seg) (collectively referred to as Junto). The outlook of these Credit Ratings (ratings) has been revised to stable from positive. Both companies are domiciled in Brazil.

The ratings reflect Junto’s balance sheet strength, which AM Best assesses as strongest, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management (ERM).

The rating upgrades stem from Junto’s consistent profitability throughout the years and stable trend in its underwriting ratios supported by a strong capital structure. The stable outlooks reflect AM Best’s expectation that Junto will maintain its profitable operating performance contributing to surplus growth needed to support an expanding book of business while maintaining ongoing support from The Travelers Companies, Inc.

Junto Re is classified as a local reinsurer in Brazil and mainly operates as a captive reinsurer for Junto Seg, an organization that has been writing surety directly for more than two decades. Junto Seg is the market-facing company of the group and the leading surety writer in Brazil. The companies benefit operationally from their minority shareholder, Travelers Brazil Acquisition LLC (with a 49.5% ownership), which is owned ultimately by The Travelers Companies, Inc. These benefits include collaboration on ERM, employee development, retrocession placement, claims handling, business development and other operational functions. After a large return of an excess capital payment made to the parent companies, Junto continues to maintain modest underwriting leverage and strong liquidity metrics, with a comprehensive retrocession program, which provides additional capacity and reduces the company’s overall exposure. Junto is well positioned to benefit from growth opportunities in the segment, such as performance bonds.

Partially offsetting these positive rating factors is Junto’s concentration risk as a surety underwriter with business concentration in a single country. As a result, albeit not likely, restrictive regulatory changes could impair Junto’s ability to execute its strategy. Junto’s plan to mitigate this risk includes expansion into related lines of business in one of the biggest markets in Latin America through innovative distribution channels.

Junto’s strong operating performance results have formed a consistent improvement in its profitability over the past five years in its technical and non-technical accounts, supported by capital adequacy at the strongest levels. The high-interest rate environment in Brazil has aided Junto to increase its financial income and improve its return on equity.

Brazil’s surety (re)insurance market continues to be highly competitive, with homegrown and global (re)insurers vying for market share. With Brazil’s persistent economic volatility, and meaningful future growth still uncertain, companies continue to seek international expansion, while keeping an eye on opportunities in the (re)insurance market. Surety has been one of the fastest-growing segments in the (re)insurance industry in Brazil.

A factor that could lead to a negative rating action is the volatility in Brazil’s macroeconomic conditions, which could contribute to a deterioration of the company’s operating performance. Additionally, negative rating actions could happen if changes in the business environment impair Junto’s ability to implement its strategy, negatively affecting its business profile. Although unlikely in the short term, positive rating actions could take place if the business profile improves by showing a stable trend in the positioning of the company as the leader in its segment.

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 use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

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