A.M. Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of "a+" of Ocaso, S.A. Seguros y Reaseguros (Ocaso) (Spain). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Ocaso's balance sheet strength, which A.M. Best categorizes as strongest, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.
Ocaso's balance sheet strength is underpinned by risk-adjusted capitalization, which is considered to be at the strongest level, as measured by Best's Capital Adequacy Ratio (BCAR). Capital and surplus increased at an annual compound rate of 4.9% between 2012 and 2017, supported by strong internal capital generation, reaching EUR 1.0 billion at year-end 2017. The company's balance sheet strength is further supported by an excellent liquidity position, a conservative investment strategy and the absence of financial leverage.
Ocaso has a track record of strong operating performance, supported by resilient technical results. The combined ratio improved to a solid 88.2% (on a solo basis) in 2017, in spite of the ongoing impact on results of regulatory changes introduced by the Spanish regulator back in 2015, which required a strengthening of reserves for legacy funeral expense business (i.e., decesos). This translated into non-life underwriting profits of EUR 55.0 million, compared with EUR 49.8 million in 2016. Conversely, the under-performance of the runoff book of high guaranteed policies led to a technical loss on the life insurance portfolio, which was somewhat offset by improved margins on new life business. Overall, the company reported an after-tax profit of EUR 64.1 million in 2017 (2016: EUR 67.6 million). A.M. Best expects the regulatory reserving schedule for legacy decesos policies to continue to have a negative effect on the company's technical profits in the medium term, although Ocaso's combined ratio is likely to remain below 90%. Additionally, life underwriting results are expected to benefit prospectively from actions taken by management to reduce the exposure of the book to market risk.
Ocaso maintains a well-established competitive position in Spain, benefiting from a strong brand and a broad distribution network. The company has a strong competitive standing in the decesos market, with a very stable customer base. Approximately 97% of Ocaso's underwriting revenue was sourced from the domestic market in 2017, and although A.M. Best considers this high concentration of business in Spain to be a potential source of earnings volatility, Ocaso has demonstrated its ability to produce resilient results, even during periods of recession.
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Ghislain Le Cam, CFA, FRM, +44-20-7397-0268
Christopher Sharkey, +1-908-439-2200, ext. 5159
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Jim Peavy, +1-908-439-2200, ext. 5644
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