AM Best has revised the outlooks to stable from negative and affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” (Good) of Azuaga - Companhia de Seguros S.A. (AZUAGA) (Portugal).

The Credit Ratings (ratings) reflect Azuaga’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and marginal enterprise risk management.

The revision of the outlooks to stable reflects the settlement and payment of a large, reinsured claim first reported in 2020. The payment of this claim removes the pressure on Azuaga’s balance sheet strength assessment by significantly diminishing the counterparty credit and dispute risk that the company is exposed to.

Azuaga's risk-adjusted capitalisation, as measured by Best's Capital Adequacy Ratio (BCAR), is at the strongest level for year-end 2023, and it is expected to remain at the strongest level going forward. The balance sheet strength assessment of strong also reflects the company’s conservative and liquid investment portfolio. Offsetting factors include Azuaga’s high dependence on reinsurance and its small capital base, which exacerbates the sensitivity of its solvency position to stressed scenarios and variations in future performance.

Azuaga reported net profits (after tax) in 2019-2021, following losses in the previous three years. Under IFRS 17, the company reported solid profits (after tax) in 2023 and 2022, mainly driven by a strong insurance result and, particularly in 2023, supported by investment income. AM Best expects Azuaga to continue reporting solid profits in 2024, and prospective years under IFRS 17.

Azuaga’s limited business profile assessment reflects its position as a small monoline insurer, focusing entirely on surety insurance in Spain and Portugal. The company has a good market position in Spain, where it generates most of its revenue, and in the smaller Portuguese market. Azuaga’s distribution channels are mainly direct and through brokers, with a small portion going through its bancassurance channel.

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