Fitch Ratings has affirmed Ohio National Seguros de Vida S.A.'s (Ohio National) international Insurer Financial Strength (IFS) rating at 'BBB+' with a Stable Rating Outlook.

Fitch also affirmed the company's National IFS at 'AA(cl)' with a Stable Rating Outlook.

The rating is based on Ohio National's moderate business profile, limited investment risk, positive results and stable leverage indicators and adequate matching indicators, and is in line with the parameters considered by Fitch for the risk category. Additionally, the analysis incorporates ownership uplift, as Fitch considers the insurer to be of strategic importance to its parent company.

Key Rating Drivers

Moderate Company Profile: Ohio National Seguros de Vida S.A. (Ohio National), based in Chile, has a company profile classified within the 'moderate' range, primarily due to its operational scale, as well as its moderate competitive position and diversification. As of 1H23, the company showed a 67.4% decrease in written premiums, mainly explained by the lack of adjudication of the disability and survival insurance business (D&S) for the 2022-2023 contracts, business that accounted for more than 70% of the insurer's total underwriting during 2022.

Support Benefit: Ohio National's rating considers a partial attribution group approach, derived from its ultimate parent, Constellation Insurance, Inc. (BBB/Stable). Constellation's primary insurance operating entity (Ohio National Life Insurance Company) is based in the U.S., with an Insurer Financial Strength Rating of 'A-'/Stable.

Stable Leverage: As of June 2023, Ohio National's leverage indicators decreased as a result of the drop in technical reserves, particularly from the D&S business, with an asset and operating leverage of 12.1x and 10.1x, respectively. The indicators are below the company's last five year's average and are aligned with the historical average of the Chilean Life insurance industry. The indicators are positioned within favorable ranges, according to Fitch metrics, although at a national level they are above the average for comparable peers.

Positive but Volatile Profitability Indicators: Through 1H23, the insurer generated a positive return on average equity (3.9%), which was below the market average and its 2022 return. The lower results were mainly affected by the gross written premiums drop, added to the increase in extraordinary (non-recurring) administration expenses. Ohio National's financial performance is favorable to the rating based on Fitch's guidelines. However, the agency takes into consideration that historical results have shown greater volatility, influenced by the participation of the D&S business.

Moderate Investment Risk: The investment portfolio is mainly comprised of national fixed income instruments, reflecting its more conservative investment strategy compared with the Chilean long-term life insurance industry. The variable income instruments proportion is limited, implying a risky assets indicator of 54.4% at the end of the first half of 2023, which is within the lower ranges of Fitch's ratio guidelines. This credit factor is capped at 'a-' due to the sovereign concentration.

Proper Asset/Liability Structure: As of June 2023, Ohio National maintained an asset-liability duration gap of 2.2 years, positioning it in the midrange of ratio guidelines according to Fitch criteria guidelines. Asset sufficiency was UF1,397 thousand, maintaining a broad level of liability coverage. The reinvestment risk, reflected in the asset adequacy test (TSA) was negative 3.84%, reflecting the limited risk of the company.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Improvement in financial performance and the earning credit factor to the 'a' category.

An improved company profile, driven by increased operating scale and diversification.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

Negative changes in Fitch's view on Ohio National's strategic importance to its ultimate parent;

Negative income is sustained and there are changes in the parent's creditworthiness;

Significant deterioration in asset/liability management (ALM) ratios;

Negative changes in the investment and asset risk assessment affecting capitalization and leverage.

Best/Worst Case Rating Scenario

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

RATING ACTIONS

Entity / Debt

Rating

Prior

Ohio National Seguros de Vida S.A.

LT IFS

BBB+

Affirmed

BBB+

Natl LT IFS

AA(cl)

Affirmed

AA(cl)

Page

of 1

VIEW ADDITIONAL RATING DETAILS

Additional information is available on www.fitchratings.com

PARTICIPATION STATUS

The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure.

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