Le Lézard
Subject: Bond/Stock Rating

AM Best Revises Outlooks to Positive; Affirms Credit Ratings of Junto Resseguros S.A. and Junto Seguros S.A.


AM Best has revised the outlooks to positive from stable and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of "a-" (Excellent) of Junto Resseguros S.A. (Junto Re) and Junto Seguros S.A. (Junto Seg) (collectively referred to as Junto). Both companies are domiciled in Brazil.

The Credit Ratings (ratings) reflect Junto'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 (ERM).

The positive outlooks reflect AM Best's expectation that Junto will maintain its profitable operating performance over the intermediate term contributing to surplus growth, which is needed to support an expanding book of business, while having The Travelers Companies, Inc. maintain its ongoing support of the company.

Junto Re is classified as a local reinsurer in Brazil and mainly operates as a captive reinsurer for Junto Seg, an organization that has been writing surety directly for more than two decades. Junto Seg is the market-facing company of the group and the leading surety writer in Brazil. The companies benefit operationally from their minority shareholder, Travelers Brazil Acquisition LLC (with a 49.5% ownership), which is ultimately owned by The Travelers Companies, Inc. These benefits include collaboration on ERM, employee development, retrocession placement, claims handling, business development and other operational functions. After a large return of excess capital payment made to the parent companies, Junto continues to maintain modest underwriting leverage and strong liquidity metrics, with a comprehensive retrocession program that provides additional capacity and reduces the company's overall exposure. Junto is well-positioned to benefit from growth opportunities in the segment, such as performance bonds.

Partially offsetting these positive rating factors is Junto's concentration risk as a surety underwriter with business concentration in a single country. As a result, albeit not likely, restrictive regulatory changes could impair Junto's ability to execute its strategy. Junto's plan to mitigate this risk includes expansion into related lines of business.

The company's adequate operating performance is supported by its profitability in the last five years in its technical and non-technical accounts. The high interest rate environment in Brazil has aided Junto to increase its financial income and improve its return on equity.

Brazil's surety (re)insurance market continues to be highly competitive, with homegrown and global (re)insurers vying for market share. With Brazil's persistent economic volatility, and with meaningful future growth still uncertain, companies continue to seek international expansion, while keeping an eye on opportunities in the (re)insurance market. Surety has been one of the fastest-growing segments in the (re)insurance industry in Brazil.

Positive rating actions could happen if Junto continues to have a profitable operating performance in its technical and non-technical accounts, while maintaining strong underwriting ratios. Negative rating actions could happen if changes in the business environment impair Junto's ability to implement its strategy, negatively affecting its business profile, also, a factor that could lead to a negative rating action is the volatility in Brazil's macroeconomic conditions, which could contribute to a deterioration in the company's operating performance.

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.

Key insurance criteria reports utilized:

View a general description of the policies and procedures used to determine credit ratings. For information on the meaning of ratings, structure, voting and the committee process for determining the ratings and monitoring activities, relevant sources of information and the frequency for updating ratings, please refer to Guide to Best's Credit Ratings.

AM Best remains the leading rating agency of alternative risk transfer entities, with more than 200 such vehicles rated throughout the world. For current Best's Credit Ratings and independent data on the captive and alternative risk transfer insurance market, please visit www.ambest.com/captive.

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