Moody’s upgrades Swiss Re Corporate Solutions Brasil Seguros’ IFSR

Moody’s Ratings has upgraded Swiss Re Corporate Solutions Brasil Seguros’ (SRCSB) financial strength rating (IFSR) to Baa2 from Baa3 and changed its rating outlook to stable from positive.

This rating action follows Moody’s upgrade of the Government of Brazil’s bond rating to Ba1 from Ba2, which also maintained a positive outlook.

According to the rating agency, the upgrade of SRCSB’s rating to Baa2 incorporates the company’s financial strengths.

The upgrade also benefits from two notches of uplift from its stand-alone credit profile of ba1 due to the high probability of support from its ultimate parent Swiss Re Ltd. , which is also the holding company of Swiss Reinsurance Company Ltd.

The affiliate support assumption rests on the foundation of shared branding and explicit financial backing through capital contributions and reinsurance support, Moody’s noted.

The rating agency added: “SRCSB’s standalone profile was previously constrained by the Government of Brazil’s rating, reflecting the strong interlinkages with the sovereign as the company operates solely in Brazil and it has a large exposure to Brazilian sovereign securities within its investment portfolio, accounting for about 95% of total investments as of December 2023.

“Therefore, the upgrade of the sovereign’s rating has led to an improvement of SRCSB’s standalone profile, which is no longer constrained by the sovereign. In upgrading SRCSB’s IFSR to Baa2 we acknowledge its strong capital adequacy and good product diversification.”

Partially offsetting SRBCS’s strengths is its historically low and volatile bottomline results, which, however, improved significantly since 2023, analysts noted.

Despite the company’s small market presence in the overall Brazilian insurance industry, it holds a relevant position in its core segments of agribusiness coverages, engineering and surety.

For 2023, SRCSB reported net income of BRL147.1 million, resulting in a 15.1% return on capital, up from BRL18.2 million in 2022 and BRL7.6 million in 2021

Despite the severe rainfall and floods that caused significant property damage and loss of life in Brazil’s southern state of Rio Grande do Sul, SRCSB has managed to report adequate profits through July 2024.

Moody’s added: “In this context, the impact of the event for SRCSB has been limited, due to strong reinsurance protection and the fact that the company does not write automobile insurance, which was particularly impacted. As of 2023, close to 21% of the company’s premiums are related to risks located in the south region of Brazil – which was affected by the floods- 58% of which were agribusiness coverages.

“Preliminary financials reported by the company showed a 9.9% annualised return on capital as of July 2024, below the 18.7% of 2023 full-year but still commensurate with its rating.”

It concluded: “The outlook was changed to stable from positive, reflecting our expectation that the company will continue to hold adequate capitalization that will support its business diversification strategy, sustaining a gradual improvement in profitability metrics.”

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