AM Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb” (Good) of AVLA Perú Compañía de Seguros S.A. (AVLA) (Lima, Peru). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect AVLA’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
The stable outlooks reflect AM Best’s expectation that the company will continue to adjust to the improving market conditions profitably while maintaining sound capitalization.
AVLA is a Peru-based property/casualty insurer that began operations in 2015. The company specializes in surety, with complimentary lines of credit insurance and engineering; AVLA ranks eighth among non-life carriers in Peru and second in the country’s surety segment, based on market share.
AM Best views AVLA’s business profile as neutral. Since its creation in 2015, AVLA has capitalized successfully on Peru’s guarantee market, which has limited capacity, and become one of the country’s main participants for credit insurance and surety. During 2022, the company continued developing its business successfully as Peru’s economy recovered amid political and social turmoil; however, execution risk is still present in the company. AM Best’s neutral assessment of the company’s business profile reflects the small size of its operation within a small segment in Peru, which currently is in Country Risk Tier 3, per AM Best’s country risk evaluation.
AM Best considers the company’s operating performance to be adequate. AVLA has been able to promote its products in a profitable manner and maintain adequate underwriting performance since 2017 and into 2022, taking proactive steps to manage claims due to market events and developing alternatives for revenue. However, AVLA’s operation remains small and needs to converge to an adequate and less volatile cost structure, for which adjustments are taking place at a group and domestic level. AVLA’s operating performance has been complemented by an active investment strategy that generated good investment results in 2022.
AVLA’s balance sheet strength assessment is very strong given its solid capital base for the risks it undertakes, as reflected in its strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). The very strong balance sheet strength assessment also recognizes the company’s capital management capabilities and shareholders’ willingness and proven history of making capital contributions to support AVLA’s growth. A panel of reinsurers supports balance sheet strength level with excellent security. Limiting AVLA’s ratings is the potential pressure of the high financial leverage present in its ultimate parent company, AVLA S.A.
Negative rating actions could take place if the financial leverage at the holding company deteriorates or if there are capital outflows to AVLA’s holding company, AVLA S.A., which weaken AVLA’s risk-adjusted capitalization to a level that no longer supports the current rating.
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