Fitch Affirms Maxseguros EPM Ltd. IFS Rating at 'BBB+'; Outlook Stable
KEY RATING DRIVERS
Maxseguros' rating is in line with that of its parent's, Empresas Publicas de Medellin S. A. E. S.P. (EPM), given the methodological approach of captive subsidiaries, where Fitch Ratings classifies Maxseguros as a core captive reinsurance company. EPM has an International Local Currency Rating of 'BBB+'/Stable Outlook.
Maxseguros is a captive reinsurer domiciled in Bermuda that only engages in reinsuring the risks of EPM and the subsidiaries in which it has controlling interest. Maxseguros controls EPM's insurance programs and plays an important role in the strategic plan of EPM to seek optimum retentions and to have a better control of its risks and exposures.
On Feb. 15, 2016, EPM's Guatape hydroelectric generation plant suffered a forced outage caused by a fire. This event affected the All Risks Material Damage coverage with estimated losses of USD 170 million. Maxseguros participates in this reinsurance program retaining USD 2 million in the secondary reinsurance layer coverage.
As of June 30, 2016, Maxseguros registered a net loss of USD 934,000, explained by the retained claims related to the Guatape incident. By the end of 2016, Fitch expects losses will be offset by income coming from reinsurance commissions due to the renewal of the material damage, sabotage and terrorism policy beginning at July 1, 2016.
Maxseguros's capital has strengthened. The total capital was USD40 million as June 30, 2016 vs USD29 million as June 30, 2015. This trend is favored by the positive internal capital generation and the profit reinvestment policy. Additionally, during 2015 the equity increased due to the capitalization of USD10 million, coming from the EPM's self-insurance fund.
Key Negative changes to EPM's ratings or to its ability and willingness to provide support could result in a downgrade for Maxseguros. Fitch may consider an upgrade of Maxseguros' rating if EPM's rating is upgraded, but is is unlikely in the short to medium term.