S&P Global Ratings on Dec. 20 affirmed Terra Brasis Resseguros' brA long-term issuer credit rating with a stable outlook.
The affirmation reflects the company's weaker operating performance compared to its peers and to the reinsurance industry, as well as its shorter operations history as a startup, the rating agency said.
"At the same time, Terra Brasis' investment portfolio remains concentrated in speculative grade securities due to its exposure to securities from Brazilian issuers, which limits our assessment of its financial risk profile despite its extremely strong capital adequacy," S&P added.
While the company's combined ROE index improved in 2014 and 2016, S&P noted that the reinsurer continues to see "volatile results" following a 2015 loss related to an environmental disaster at an iron ore dam in the Brazilian state of Minas Gerais. On the other hand, the company has expanded its operations into other Latin American countries, including Colombia, Peru and Ecuador, which has helped to mitigate the effects of Brazil's prolonged recession, the rating agency noted.
S&P projects a slight decrease in the insurer's gross premiums in 2016 but foresees expansion in terms of net premiums by year-end; for 2017 and 2018, premium growth should hit between 12% and 15%.
The rating agency expects Terra Brasis to post net income of 7.5 million Brazilian reais in 2016 and an average of between 10 million reais and 11 million reais through 2018. S&P also ruled out the need for any capital injection for the next three years.
As of Dec. 20, US$1 was equivalent to 3.37 Brazilian reais.
S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.