AM Best has affirmed the Financial Strength Rating of A (Excellent), the Long-Term Issuer Credit Rating (Long-Term ICR) of 'a' (Excellent) and the Mexico National Scale Rating of 'aaa.MX' (Exceptional) of Reaseguradora Patria, S.A. (Patria Re) (Mexico).

AM Best also has affirmed the Long-Term ICR of 'bbb' (Good) of Patria Re's ultimate parent, Pena Verde, S.A.B. (Pena Verde) (Mexico). The outlook of these Credit Ratings (ratings) is stable. Per AM Best's criteria procedure on insurance holding companies, Pena Verde's rating reflects a standard notching from Patria Re's Long-Term ICR and is in line with companies of the same rating level.

The ratings reflect Patria Re's balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.

Patria Re's strongest balance sheet assessment is supported by the same assessment on its risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR), low underwriting leverage, robust reinsurance program and the company's strong liquidity metrics. The ratings also reflect its comprehensive ERM infrastructure and expansive knowledge of its core markets in Latin America, which reflects the company's smooth implementation of its expansion strategy with a stable overseas operation outside its niche market, even with the current limitations and economic consequences of the COVID-19 pandemic.

Partially offsetting these strengths is Patria Re's operating performance, impacted by the volatile valuation of investments in recent years, due to economic volatility in Mexico and most recently due to COVID-19 pandemic, despite improvements in underwriting quality. The company has taken steps to alleviate concern related to the significant participation of equities in its investment portfolio and some catastrophe-prone lines of business, which could create volatility in the company's operating performance, by shifting toward a more conservative investment strategy.

Patria Re has established a solid niche position in Mexico and Latin America, which allows it to accept profitable business selectively while maintaining a diversified product portfolio tailored to specific markets. This strategy has resulted in consistently favorable underwriting results over the years and has contributed to Patria Re's enhanced risk-adjusted capitalization. A well-balanced reinsurance program placed among counterparties with a strong security level also reinforces the company's risk-adjusted capitalization. Furthermore, the company's underwriting leverage has remained at a conservative level for the past five years.

During 2020, the company reported negative bottom line results, limited by catastrophe reserve development; however, when these reserves are discounted, the results of the company would be positive, mainly driven by underwriting results. The company's efforts to maintain stable claims and management expenses, coupled with strong underwriting practices, have resulted in a profitable first half for 2021, however, it remains limited by catastrophe reserve development.

The stable outlooks on Patria Re's ratings are due to its ability to implement its business expansion strategy among a harsh Latin America insurance market, while maintaining its strongest level of risk-adjusted capitalization.

AM Best considers Patria Re to be well-positioned at its current rating level. Factors that could lead to positive rating actions include a continuous improvement in profitable underwriting and bottom line results, while maintaining its strongest level of risk-adjusted capitalization, as well as the continued and successful operation of its overseas expansion. Factors that may lead to negative rating actions include a sustained decline in profitability, significant deterioration in risk-adjusted capitalization and unsuccessful operations of the company's overseas expansion plans.

The methodology used in determining these ratings is Best's Credit Rating Methodology (Version Nov. 13, 2020), which provides a comprehensive explanation of AM Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

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