Fitch Places HDI Seguros Colombia on Positive Rating Watch Amid Merger Process

Fitch Ratings has placed HDI Seguros Colombia S.A. (HDI Seguros Colombia), previously known as Liberty Seguros S.A., on a Positive Rating Watch, maintaining the company’s national financial strength rating of ‘AA+(col)’. The outlook change reflects Fitch’s anticipation of improved business profile and financial performance following the ongoing merger with HDI Seguros S.A.

The rating watch is expected to resolve upon the completion of the merger and the release of consolidated financial statements, which Fitch will review to determine if HDI Seguros Colombia’s performance aligns with the current rating or merits an upgrade. Fitch indicates that the process may extend beyond the usual six-month timeline required for a Positive Rating Watch resolution.

Key Factors in Rating Decision

Ongoing Merger with HDI Seguros S.A.
Following its acquisition by Germany’s Talanx Group in February 2024, HDI Seguros Colombia initiated a merger with HDI Seguros S.A., changing its corporate name and submitting a legal merger approval request to Colombian regulators. Once approved, HDI Seguros Colombia will absorb HDI Seguros S.A.’s operations. Fitch views this consolidation as potentially enhancing HDI Seguros Colombia’s business profile and operational results.

Support from Talanx Group
HDI Seguros Colombia now benefits from financial and strategic backing from Talanx Group, which has been designated as the new parent company. Fitch considers Talanx’s support significant, as Colombia is an essential growth market for the group, providing brand, operational, and technical synergies, along with capital support if needed.

Medium-Sized Company with a Strong Market Position
At the close of 2023, HDI Seguros Colombia ranked as the tenth-largest general insurance provider in Colombia, holding a 4.4% market share. The company maintains a notable presence in the auto insurance sector, accounting for 8.7% of premiums in this segment. Fitch notes that the merger with HDI Seguros S.A. is likely to strengthen HDI Seguros Colombia’s market position and facilitate the adoption of best practices within its operations.

Performance Improvements and Risk Exposure
The company’s operating performance has seen improvements, with favorable loss ratios across its main business lines. This performance has been supported by reserve releases within compliance and liability lines, though Fitch expects this effect to be temporary as HDI Seguros Colombia phases out underwriting in these lines. The company reported a combined ratio of 96.7% at the end of 2023 and 95.5% by mid-2024, though these metrics remain influenced by recent reserve releases. Fitch will monitor future loss ratios for further clarity.

Reduced Leverage Levels
In 2023, HDI Seguros Colombia reversed a previous trend of declining equity, recording a 32.5% increase in equity that continued into 2024 with 24.6% growth by mid-year. Internal resource generation and modest retained premium growth contributed to improved leverage ratios. Between the end of 2022 and 2023, the company’s retained premium-to-equity ratio decreased from 1.62x to 1x, while net leverage dropped from 2.51x to 2.14x. As of mid-2024, these indicators stood at 1.25x and 2.17x, respectively. The company maintains a solvency margin of 237% and will assess its dividend policy following the merger’s completion.

Conservative Investment Portfolio
HDI Seguros Colombia’s investment portfolio remains conservative, with a focus on fixed income assets and limited exposure to riskier investments. As the merger progresses, Fitch expects adjustments to the investment guidelines to standardize the policies of both companies. The agency will monitor how these changes impact portfolio performance.

Rating Sensitivities

Potential for Rating Downgrade
Fitch may remove the Positive Rating Watch and affirm the current rating with a Stable Outlook if the combined entity’s profitability and leverage metrics show a decline relative to the 2023 and 2024 levels.

Potential for Rating Upgrade
The Positive Rating Watch could be resolved with an upgrade if consolidated financial results continue to demonstrate improved performance, with a combined ratio near 100%, comparable to peers in higher rating categories, and leverage levels in line with averages from the past three years.

Regulatory Information

HDI Seguros Colombia S.A. requested this rating assessment, which followed a periodic review by Fitch Ratings on November 6, 2024. The rating decision was made by a committee led by Carolina Triat, Carolina Ocaranza, and Miguel Martínez. Additional information about the committee members and their profiles can be found on Fitch Ratings’ Colombia page.

Fitch clarifies that its ratings reflect professional assessments and do not serve as buy, hold, or sell recommendations. The credit rating criteria applied in this assessment include the Insurance Rating Methodology (April 3, 2024) and the National Scale Rating Criteria (December 22, 2020).