AM Best Revises Outlooks to Stable and Affirms Credit Ratings of Mercantil Seguros y Reaseguros, S.A.

AM Best has revised the outlooks to stable from negative and affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb” (Good) of Mercantil Seguros y Reaseguros, S.A. (Mercantil Seguros) (Panama).

The Credit Ratings (ratings) reflect Mercantil Seguros’ balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.

The stable outlooks reflect Mercantil Seguros’ capacity to maintain profitable metrics that strengthen and protect its capital base.

Mercantil Seguros is a Panama-based (re)insurer established in 2013, with gross premiums written mainly composed of health, which represents over 85% of the portfolio with the remaining risk distributed among property lines, auto and surety. The company, which is part of Mercantil Group’s international companies and controlled by ultimate parent, Mercantil Servicios Financieros Internacional, S.A. (MSFI), operates in Panama through a network of brokers and direct distribution channels. Mercantil Seguros also serves as a retrocessionaire for reinsurance business sourced in Venezuela, driven by reinsurance brokers. Partially offsetting these positive factors is Mercantil Seguros’ relatively small size within Panama´s insurance industry.

Mercantil Seguros’ balance sheet strength is underpinned by its risk-adjusted capitalization at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). The strongest assessment also reflects the company’s well-structured reinsurance program among counterparties of strong credit quality, sound underwriting practices and conservative investment strategy. The company has consistently increased its capital, supported by positive bottom-line results and driven by a consistent inflow of underwriting and investment income.

Mercantil Seguros has shown sound underwriting practices, characterized by overall premium sufficiency levels. A combined ratio of 93.5% in 2023, was achieved through well-underwritten risks by group companies. Additionally, consistent reinsurance profits, which help offset acquisition costs, continue to support the company´s profitability.

AM Best expects Mercantil Seguros’ current geographic diversification to further improve through distribution channel synergies provided by the overall organization in the near- to mid-term, enabling Mercantil Seguros to expand its Panama-sourced business while diminishing dependence on its Venezuelan-sourced business.

Factors that could lead to negative rating actions include the deterioration of either sources of revenue of the group, or financial leverage at MSFI, which hinders the group's ability to service its debts, putting pressure on the financial strength of the insurance entities. Other factors, such as adverse underwriting performance, which leads to a significant deterioration in Mercantil Seguros’ risk-adjusted capitalization, or political turmoil that affects Venezuelan-sourced business, could drive negative rating actions. While highly unlikely in the short to medium term, factors that could result in positive rating actions include improvements in the credit profile of the group, as a result of sustained profitability that strengthens its capital base and maintains consolidated risk-adjusted capitalization at the strongest level.

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.

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

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