AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” (Excellent) of Instituto Nacional de Seguros (INS) (San Jose, Costa Rica). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect INS’ balance sheet strength, which AM Best assesses as strongest, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management (ERM).
INS’ risk-adjusted capitalization remains at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), and is supported by a comprehensive and adequate reinsurance program, solid operating performance and its position as the leading insurer in Costa Rica. INS’ business profile assessment considers the characteristics of Costa Rica’s market, derived from the country’s Insurance Law of 2008, and includes INS’ robust market share and the guarantee provided by Costa Rica’s government to support INS’ domestic obligations.
INS is Costa Rica’s largest insurer with a market share of 65%, as of December 2022. The company still dominates compulsory workers’ compensation and mandatory auto insurance segments despite the market opening up for other participants several years ago. INS’ compulsory premium segment represents 35% of its business portfolio, as of December 2022.
In 2022, Costa Rica’s market showed a recovery, after being affected by a slowdown during the previous years, as a result of the economic contraction caused by the COVID-19 pandemic and an adverse fiscal situation. INS’ underwriting performance improved in comparison with 2021, mainly driven by a lower level of claims. The company has not relaxed its underwriting standards from the adjustments implemented in previous years, like the abandonment of poor-performing products in auto, personal property and group life.
INS presented a diminished return on equity of 3.3% from 12.3%, mainly due to mark-to-market losses. Investment income, based on a conservative investment portfolio, still contributed to a positive bottom-line result of USD 65.1 million at year-end 2022, providing a solid growth for its capital base, despite the effect of market volatility.
AM Best expects INS to continue improving and consolidating its business by implementing its strategy progressively, which should offset increased competition in the voluntary segments. The company is in a good position to maintain its strongest risk-adjusted capitalization, as measured by BCAR, due to its good profitability, appropriate ERM practices and adequate reinsurance with highly rated international reinsurers, which provides a buffer for variations in claim severity and catastrophe events.
Positive rating movements are not expected in the medium term. Negative rating actions could occur if technical results deteriorate or if there is a reduction in net income, given any kind of loss that significantly affects the company’s profitability or risk-adjusted capitalization to levels that are no longer supportive of its current ratings.
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Olga Rubo, FRM
Senior Financial Analyst
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Associate Director, Public Relations
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Senior Financial Analyst
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Senior Public Relations Specialist
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