A.M. Best Assigns Ratings to Nacional de Reaseguros, S.A.

LONDON--(BUSINESS WIRE)-- A.M. Best Europe – Rating Services Limited has assigned a financial strength rating of A- (Excellent) and an issuer credit rating of “a-” to Nacional de Reaseguros, S.A. (Nacional) (Spain). The outlook assigned to both ratings is stable.

The ratings of Nacional reflect its strong risk-adjusted capitalisation, ongoing strong operating performance and very good business profile as Spain’s leading reinsurer. The ratings also factor in Nacional’s concentration in the Spanish market; which is affected by a depressed economic environment and the company’s high exposure to sovereign debt.

Nacional’s strong risk-adjusted capitalisation is supported by good retained earnings, reserve redundancies and a comprehensive retrocession programme. Despite the company’s high exposure to Spanish sovereign and corporate debt (EUR 190 million at year-end 2011), Nacional’s capitalisation remains supportive of its ratings on both a standard and an A.M. Best eurozone investment stress test bases. While capital levels are expected to remain strong prospectively, the current economic environment remains volatile. In A.M. Best’s opinion, a significant deterioration in eurozone financial markets could negatively impact Nacional’s capitalisation.

Nacional’s operating performance is expected to remain strong going forward with a profit before tax in the range of EUR 35 to 40 million in 2012 and 2013. Nacional’s disciplined underwriting guidelines and limited natural catastrophe exposure have resulted in stable technical results over the last five years, with an average combined ratio of 93.3%. The reinsurer’s net income is also supported by good investment results. However, this could potentially become more volatile in 2013, putting pressure on the reinsurer’s overall performance.

Nacional has a very good business profile as Spain’s leading domestic reinsurer. The company has been operating in Spain for more than 70 years and has well established relationships with its main cedants. However, its overall size is limited when compared with international players. Moreover, Nacional remains largely concentrated in its domestic market. Nacional’s gross written premiums were down 1.8% to EUR 464 million at year-end 2011 following softer rates and lower volumes resulting from the ongoing difficult economic conditions. The challenging insurance market environment in Spain is likely to continue to limit premium growth going forward. However, revenues were stable at half-year 2012 as Nacional successfully grew its foreign book of business to offset lower premiums domestically.

Upward rating movement on Nacional’s ratings is possible if the financial and economic situation in peripheral eurozone countries were to stabilize.

Negative rating actions could occur if there were a worsening of Nacional’s risk-adjusted capitalisation tied to investment losses or a deterioration of the operating environment in its core market.

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilised include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding Universal BCAR”; and “Catastrophe Analysis in A.M. Best Ratings”. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: A.M. Best Europe - Rating Services Limited Supplementary Disclosure.

A.M. Best Europe – Rating Services Limited is a subsidiary of A.M. Best Company. Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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A.M. Best Company, Inc.
Charlotte Vigier, +(44) 20 7626 0270
Financial Analyst
Sam Dobbyn, +(44) 20 7626 0264
Senior Financial Analyst
Rachelle Morrow, +(1) 908 439 2200, ext. 5378
Senior Manager, Public Relations
Jim Peavy, +(1) 908 439 2200, ext. 5644
Assistant Vice President, Public Relations

Source: A.M. Best Company, Inc.