Fitch Assigns Pacifico Peruano-Suiza IFS of 'BBB-'; Outlook Stable.

NEW YORK -- Fitch Ratings has assigned an international scale insurer financial strength (IFS) rating of 'BBB-' to Pacifico Peruano-Suiza Compania de Seguros y Reaseguros (PPS). The Rating Outlook is Stable.

PPS' rating reflects its adequate capitalization ratios, above average liquidity, conservative retention levels, solid market share and franchise in Peru and good profitability levels, although those still rely significantly in the investment income resulted from its relatively larger share of variable income securities. A conservative management also benefits PPS' rating. The rating also considers higher operating costs that have pressured the company's combined ratio and a relatively higher share of variable income securities on its investment portfolio that could post some volatility in the results of the company. Also, significant competition pressures and the significant concentration in the Peruvian insurance market have been taken in consideration.

Since the second half of 2005, PPS has been engaged in an ambitious reorganization plan in order to regain part of its market share and to also strengthen its technical results. This plan, partially advised by external consultants and one of its shareholders, American International Group (AIG), has been outlined towards more segmentation of the clientele, a widening of its commercialization channels, a reorganization of its subscribed business, enhancement of its brand and an improvement of its personnel and IT capabilities. This plan has implied the reduction of business in segments were profits were not aligned with management expectations and significant investments that must yield positive results over the short and medium term. Despite these trends, one of the main challenges of the company is related to its heavy cost base (Net Operating Costs/Net Earned Premium Average for 2002-2006 of 45%).

At year-end 2006 PPS managed around 19% of the total insurance market in Peru, being the second largest insurance company in the country, a market were the largest 5 players manage approximately 87% of total earned premium. PPS shareholder structure (75% in hands of the Grupo Credicorp, a financial conglomerate that includes Banco de Credito del Peru-BCP, the largest commercial bank in the country and 20% in control of AIG) not only benefits its distribution capabilities, but also results in above average corporate governance policies and controls that enhances its financial profile. In addition to local regulatory guidelines in regards Corporate Governance and financial information transparency, PPS also complies with international standards like the Sarbanes - Oxley Act of 2002 and other major requirements.

The Peruvian insurance industry is still underdeveloped with a ratio of premium to GDP of 1.5%. Nevertheless, the positive trend observed in national income and positive economic prospects for the country could result in a steady increase of insurance penetration going forward. This environment has resulted in a significant increase in market competition from local and foreign companies that could require additional commercial efforts and a conservative technical approach, in order to preserve and enhance the company financial strength. A lower dependence from investment income would be key to sustain past profitability levels in absence of sizable gains from trading of variable income securities.

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