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AM Best Revises Issuer Credit Rating Outlook to Negative for Kot Insurance Company AG.

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ENPNewswire-October 15, 2021--AM Best Revises Issuer Credit Rating Outlook to Negative for Kot Insurance Company AG

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Release date- 14102021 - AM Best has revised the Long-Term Issuer Credit Rating (Long-Term ICR) outlook to negative from stable and affirmed the Financial Strength Rating (FSR) of B++ (Good) and the Long-Term ICR of 'bbb+' (Good) of Kot Insurance Company AG (Kot) (Switzerland).

The outlook of the FSR is stable.

The Credit Ratings (ratings) reflect Kot's balance sheet strength, which AM Best assesses as very strong, its strong operating performance, neutral business profile and appropriate enterprise risk management, as well as rating drag due to its association with Petroleos Mexicanos (PEMEX).

Kot is the captive reinsurer of PEMEX, the Mexican state-owned oil and gas company.

The revision of the Long-Term ICR outlook to negative from stable reflects a weakening in PEMEX's credit profile due to ongoing negative free cash flow, high debt maturities and the resultant liquidity strain. Kot remains well-integrated within PEMEX and is important to the group as a cost-effective risk management tool. However, as PEMEX's single reinsurance captive, Kot's underwritten risks are concentrated in Mexico.

Kot's very strong balance sheet is underpinned by its risk-adjusted capitalisation at the strongest level, as measured by Best's Capital Adequacy Ratio (BCAR). AM Best expects Kot to maintain a buffer over the minimum requirements for the strongest BCAR assessment in the medium term, supported by its relatively low net underwriting leverage and conservative investment strategy. An offsetting rating factor in the balance sheet strength assessment is Kot's dependence on reinsurance to write large risks; however, the risks associated with this dependence are mitigated partly by long-standing relationships with reinsurers of good credit quality.

Kot's robust historical earnings have been driven by its underwriting account. The combined ratio remained excellent at 34% in 2020 (2019: 20%), above the five-year weighted average of...

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