Atradius assigned negative outlook by Moody's

Atradius’s main operating companies have been assigned the financial strength rating (FSR) of A3 with a negative outlook by Moody’s Investor Services.

Moody’s said the ratings for Atradius Credit Insurance NV, Atradius Trade Credit Insurance Inc, Atradius Re Ltd and Credito y Caución Seguros y Reaseguros SA reflected Atradius’ strong position in the credit insurance market, its conservative investment portfolio, good capitalisation, substantial reinsurance protection and low financial leverage.

But the ratings agency said these strengths were offset by the group’s focus on the cyclical industry of credit insurance and an operating exposure to Spain of around 25% at year-end 2011.

In addition, Moody’s said Atradius credit quality could potentially be constrained by its ownership by Spain-based insurer GCO.

“While Moody’s notes the market share of Atradius has declined in recent years driven by the risk-mitigating actions taken by the group since 2008, we note that it has stabilised recently following stronger credit fundamentals, notably increased levels of shareholders’ equity, and improved levels of customer retention,” Moody’s said in a statement.

But Moody’s raised concerns over Atradius’ limited business diversification due to its focus on credit insurance.

The ratings agency said that while the group’s exposure remained relatively well diversified by country and sector, Spain remained the largest contributor to the group’s exposure, with the region of Spain, Portugal and Brazil representing 25%, of which Spain is the vast majority.

Moody’s said that despite Atradius’ underwriting profitability strongly rebounding following risk mitigation action taken after 2008 and the benign economic environment, the firm’s profitability was vulnerable to the deteriorating economic environment, especially in Spain and Europe generally.

“The group’s underwriting profitability continued to be strong as of H1 2012 (gross combined ratio at 87%), although underlying pressures continue in Southern European exposures,” Moody’s said.

“Notably, profitability in the Spanish subsidiary, Credito y Caución, has deteriorated significantly since 2010, with a consistently high reported gross loss ratio at around 85% at H1 2012, similar to that of year-end 2011 and significantly above the 55% at year-end 2010.”