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NEW YORK--([ BUSINESS WIRE ])--Fitch Ratings has affirmed El Pacifico Vida Compania de Seguros y Reaseguros S.A.'s (Pacifico Vida) Insurer Financial Strength (IFS) rating at 'BBB'. The Rating Outlook is Stable.

The ratings affirmation reflects Pacifico Vida's solid position, competitive performance in Peru's insurance market, pricing discipline, and adequate premiums diversification. Pacifico Vida also has prudent asset/liability management backed by a conservative investment portfolio, especially considering its long-tail reserves in the pension and annuities business. This is partially offset by its dependence of Peru's insurance industry and relatively higher leverage ratio.

Pacifico Vida is focused on the life insurance segment (12.35% of gross written premiums [GWP] at June 2012) but also is a core contributor to the strong position of Pacifico Insurance Group as a whole (26.12% of GWP at June 2012). The company is part of Grupo Credicorp, one of the largest financial conglomerates in Peru, representing strong growth potential in terms of cross-selling strategies and massive distribution channels through Banco de Credito del Peru and AFP Prima.

Fitch considers there to be ample room to improve synergies and economies of scale with the insurance business through Pacifico Insurance Group's increasing investment in the health care segment during 2011 and the first half of 2012 (1H'12), which totaled almost PEN305 million. The agency also believes that this investment should help to better diversify Pacifico Group's income flow.

Despite the fact that Pacifico Vida's net income was negatively affected during 1H'12, mainly driven by a significant rise in pension savings claims and the effect of reserve adjustments in annuities and individual life, its profitability ratios remain comparable to its peers' upper tiers. As of June 2012, the company reached an annualized return-on-average equity of 22.6% and an operating ratio of 81.4%.

Pacifico Vida's leverage ratio has historically been maintained at above the market average; however, it remains adequate even when higher than those of its peers in the region and higher than previous years (liabilities-to-equity ratio of 6.4x at June 2012 from 5.8x at June 2011) and does not constrain its growth. This is mainly a reflection of the strict regulatory requirements for annuities reserves (55.1% of technical reserves).

Pacifico Vida's investment portfolio has adequate liquidity and well-matched asset-to-liability risks. The bulk of the investment portfolio is concentrated in fixed income securities (94.0%) and the remainder includes real estate (0.9%) and equity investment (5.0%), maintaining a relatively stable investment yield. The portfolio also carries limited credit risk with a major allocation in Peru's sovereign debt, and a diversified position in international investment-grade issuers and well-regarded local debt issuers (not rated internationally).

Key rating triggers that may lead to an upgrade include a sustainable improvement in company leverage ratios to below 5x, low volatility in earnings, including net financial earnings. In addition, a better investment credit risk profile over an extended period could favorably affect the rating. Fitch notes that the probability of an upgrade is low given Pacifico Vida's current rating level when compared to Peru's sovereign rating.

Key rating triggers that may lead to a downgrade include recurrent volatility in earnings and profitability profile, increasing leverage ratios over 8x, and a deterioration in its credit risk profile as a result of economic downturns abroad.

Fitch has affirmed the following rating:

--Issuer Financial Strength (IFS) at 'BBB'.

The Rating Outlook is Stable.

Additional information is available at '[ www.fitchratings.com ]'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (Sept. 22, 2011).

Applicable Criteria and Related Research:

Insurance Rating Methodology

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=651018 ]

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