According to Moody's, PPS's rating affirmation is based primarily on its leadership share of the Peruvian P&C market, its good product diversification, its adequate profitability, and its affiliation with the Credicorp group, which includes the largest Peruvian bank - Banco de Crédito del Perú (rated Baa2 for deposits). Moody's lead analyst for PPS, Diego Nemirovsky, commented: "The company's operations and brand recognition benefit from its affiliation with Credicorp. Furthermore, PPS' integration and identification with its majority-owned life and health subsidiaries, Pacífico Vida and Pacífico Salud, respectively, strengthen the company's presence and diversification in the Peruvian insurance marketplace." The rating agency also positively noted PPS's commitment to financial transparency and disclosure.
Moody's pointed out, however, that these strengths are tempered by several credit concerns and challenges for the company including: 1) the investment risk and volatility associated with its significant equity exposure (e.g. investment in subsidiaries), 2) high exposure to natural catastrophes, given Perú's location along the Andes cordillera and Pacific coastline, 3) weak underwriting results reflected by its high and volatile combined ratio, 4) geographic business concentration, and 5) Peru's weak insurance operating environment. The rating agency also mentioned that the recent acquisition of clinics for PPS' health subsidiary raises concerns, as results will be much dependent on the company's expertise in owning and managing the delivery of healthcare services of these clinics. Moreover, Moody's believes that these acquisitions put strain on PPS' financial profile, given the increase in the company's investment in subsidiaries, and given that part of the funding of these acquisitions came from the issuance of subordinated debt by PPS in the local market, which increased the company's financial leverage.
Commenting on factors that could result in an upgrade for PPS's rating, Moody's cited the following: a significant improvement in Peru's operating environment and/or government bond rating, and a combination of improved profitability (combined ratio consistently below 95%) and capitalization. Conversely, PPS's rating could be downgraded for the following reasons: a significant deterioration in Peru's operating environment and/or government bond rating, sustained underwriting losses, a continued decline in its capital adequacy, a catastrophe event that results in losses greater than 15% of equity, or a substantial reduction in market share.
PPS is headquartered in Lima, Perú, and it reported net income of s/. 75 million and gross premiums written of s/. 743 million for the nine-month period ended September 30, 2012. As of that date, the company reported total assets of s/. 2.1 billion and shareholders' equity of s/. 1.1 billion.
The principal methodology used in rating PPS was Moody's Global Rating Methodology for Property and Casualty Insurers, published in May 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
Moody's insurance financial strength ratings are opinions of the ability of insurance companies to pay punctually senior policyholder claims and obligations. For more information, visit our website at www.moodys.com/insurance.
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Diego Nemirovsky Vice President - Senior Analyst Financial Institutions Group Moody'sLatin America Ing. Butty 240 16th Floor Buenos Aires City C1001AFB Argentina JOURNALISTS: (800) 666 -3506 SUBSCRIBERS: (5411) 5129 2600 Robert Riegel MD - Insurance Financial Institutions Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Latin America Ing. Butty 240 16th Floor Buenos Aires City C1001AFB Argentina JOURNALISTS: (800) 666 -3506 SUBSCRIBERS: (5411) 5129 2600 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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