Fitch
Assigns New Ratings to The Instituto
Nacional de Seguros in Costa Rica
Fitch Ratings has assigned a 'BB+' local
currency Insurer Financial Strength Rating
(IFS) and a national scale long-term rating
of 'AAA(cri)' to Costa Rica's state insurer
, the Instituto Nacional de Seguros (INS).
The Rating Outlook is Stable.
INS' ratings reflect the company's very
strong capital position, strong
profitability, highly dominant market
position, adequate reinsurance protection,
liquidity and the explicit support the
company receives from the government of
Costa Rica (local currency Issuer Default
Rating [IDR] rated 'BB+' by Fitch).
On the other hand, the need to enhance its
operating platform, a more diversified
investment portfolio, dynamic underwriting
techniques and effective cost control
policies are key to preserving its financial
profile going forward, while a less benign
operating environment could challenge its
business plan.
The Rating Outlook is Stable. INS' rating is
highly tied to the rating of its
shareholder, the Costa Rican government.
Changes in the rating of the former could
result in changes to INS' ratings.
INS was founded in 1924 and has been in full
control of the insurance monopoly in Costa
Rica since that date until last year when a
law to open up the insurance market was
passed.
According to the Insurance Law of 2008, the
company's insurance operations in Costa Rica
are guaranteed by the full faith of the
government but not its financial debt or
insurance operations held abroad.
Despite the fact that the current regulatory
framework (reformed on 2008) is constructive
and promotes a free market, it is new and
untested, and some specific regulatory
pieces are still in the process of being
approved.
INS is the largest insurance company in
Central America and among the largest
insurance companies in Latin America.
Despite the relatively low penetration of
the insurance business in Costa Rica, INS'
market dominance and relative size is
explained by the benefits of the insurance
monopoly created in Costa Rica in 1924 and
the substantial size of the Costa Rican
economy. The opening of the insurance market
in the country since mid-2008 allows new
players to participate, which may result in
some competition for INS, but its market
dominance is expected to persist in the
medium term while new players start their
operations.
Operating performance has been improving
thanks to a more controlled claims ratio,
good acquisition costs and high financial
income despite rigidities in terms of
operating costs and some mandatory expenses
outlined by the previous and current
regulatory framework. With this, the ROAA
ratio has averaged almost 7% in the last
five years. Despite the expected increase in
competition, a less benign operating
environment and lower interest rates, INS'
profitability should remain strong in the
short to medium term.
Capital is ample and not encumbered,
although it is expected to remain as one of
INS' main strengths in the future.
Conservative profit retention and high
profitability have allowed INS to enhance
its already strong capital ratios. At the
end of fiscal 2008, the
liabilities-to-equity ratio stood at 2.0
times (x), and the
net-earned-premium-to-equity ratio averaged
less than 1.0x in the last five years. Total
leverage is adequate at 2.9x.
Fitch's rating definitions and the terms of
use of such ratings are available on the
agency's public site, www.fitchratings.com.
Published ratings, criteria and
methodologies are available from this site,
at all times. Fitch's code of conduct,
confidentiality, conflicts of interest,
affiliate firewall, compliance and other
relevant policies and procedures are also
available from the 'Code of Conduct' section
of this site.
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