SAN SALVADOR, El Salvador--(BUSINESS WIRE)-- Fitch Ratings has affirmed the international local currency Insurer financial Strength (IFS) ratings of Instituto Nacional de Seguros (INS) at 'BB+'. The Rating Outlook is Stable. Fitch has also affirmed INS' National IFS rating at 'AAA(cri)' with a Stable Outlook.

INS' ratings reflect the company's very strong capital and profitability levels, dominant market position, adequate reinsurance protection and risk exposure, high liquidity ratios, and the explicit support the company receives from the government of Costa Rica (local currency Issuer Default Rating [IDR] 'BB+'). Despite these strengths, INS' need to enhance its operating platform and diversify its investment portfolio are some of the main challenges that the company should address in order to preserve its adequate financial results and dominant position in a market recently open to competition.

The Rating Outlook is Stable. INS' rating is highly tied to the rating of its shareholder, the Costa Rican government. Changes in the rating of the latter could result in changes to INS' ratings.

INS is the largest insurance company in Central America and one of the largest insurance companies in Latin America. Benefited by its monopolistic nature until mid 2008, INS has been able to post strong profits sustained by the sizable returns of its ample investment portfolio and improving combined ratio; with an average Return of Average Assets ratio (ROAA) above 7% in the last five years. Despite the inception of new insurance players in Costa Rica in the recent past, INS' market dominance and strong franchise remains unchanged, a trend that should persist in the short and medium term. Despite the former, significant improvements in terms of its underwriting skills and claim cost controls have been achieved, providing the company with better tools to cope with expected competition although finer tuning is required and expected.

Capital ratios remain strong, not only thanks to its ample pre-existing capital base and good profitability, but also given its current 100% retained earnings policy, expected to last at least until year 2012. As such, the liabilities to equity ratio has steadily decreased since 2002 (2009: 1.7 times [x]; 2002: 3.6x); while technical reserves represent around 77% of its liabilities and cover more than 175% of its net premiums. INS capital is not encumbered.

In part given the limitations of the local capital market and also due to the state owned nature of the company, its investment portfolio is highly concentrated on government counterparties (central government, central bank and publicly owned banks with sovereign guarantee); a trend that may persist in the future. Those investments represented 1.1x company's equity as of December 2009; a level viewed as high by Fitch, given the current 'BB+' Sovereign rating. Despite the concentration of the investment portfolio, liabilities are adequately match in terms of maturities and yield, and mostly considering the short-term nature of the both sides of the balance sheet, due the minor participation of life insurance commitments and other long-term risks.

INS was founded in 1924. According to the Insurance Law of 2008, the company's insurance operations in Costa Rica are guaranteed by the full faith of the government but not its financial debt or insurance operations held abroad.

Additional information is available at 'www.fitchratings.com'

Related Research:

--'Insurance Rating Methodology' (Aug. 13 2010);

--'Latin American Insurance Review & Outlook 2010: Good Growth Prospects but Challenges Ahead' (May 18, 2010).

Related Research:

Latin American Insurance Review & Outlook 2010: Good Growth Prospects but Challenges Ahead

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=512705

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547766

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San Salvador, El Salvador
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Senior Director
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