AM Best has revised the outlook for Mercantil Seguros y Reaseguros, S.A. (Mercantil Seguros) from negative to stable and affirmed its Financial Strength Rating of B++ (Good) and Long-Term Issuer Credit Rating of “bbb” (Good). These ratings reflect the company’s strong balance sheet, assessed as the highest level by AM Best, alongside adequate operating performance, a limited business profile, and effective enterprise risk management.
The stable outlooks indicate that Mercantil Seguros is well-positioned to sustain profitable performance, which will continue to support and protect its capital base.
Mercantil Seguros, a Panama-based insurer established in 2013, generates most of its gross written premiums from health insurance, which accounts for over 85% of the portfolio. The remainder is divided among property, auto, and surety lines. The company is part of the Mercantil Group and is controlled by its ultimate parent, Mercantil Servicios Financieros Internacional, S.A. (MSFI). Operating through brokers and direct distribution channels in Panama, Mercantil Seguros also acts as a retrocessionaire for reinsurance business sourced from Venezuela. Its relatively small size within Panama’s insurance market partially offsets its positive factors.
The company’s balance sheet strength is underpinned by its strong risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). The company benefits from a well-structured reinsurance program with highly rated counterparties, prudent underwriting practices, and a conservative investment strategy. Consistent capital growth has been supported by positive financial results, driven by stable underwriting and investment income.
Mercantil Seguros has demonstrated effective underwriting, achieving a combined ratio of 93.5% in 2023, thanks to its disciplined risk selection. Additionally, reinsurance profits have contributed to offsetting acquisition costs, bolstering overall profitability.
AM Best expects Mercantil Seguros’ geographic diversification to improve, aided by synergies from its broader organizational distribution channels. This will help expand its business sourced from Panama while reducing reliance on Venezuelan-originated business.
Potential factors for negative rating actions include a decline in group revenue sources or a significant increase in financial leverage at MSFI, which could impact the group’s ability to service debt and strain the financial strength of the insurance subsidiaries. Other risks, such as poor underwriting performance that weakens Mercantil Seguros’ capitalization or political instability affecting its Venezuelan operations, could also lead to negative ratings. While unlikely in the short to medium term, positive rating actions could result from sustained profitability and further strengthening of the capital base, leading to a consolidated risk-adjusted capitalization at the highest level.
