Market Overview

A.M. Best Comments on Under Review Status of Cooperativa de Seguros de Vida de Puerto Rico Amid Uncertainty Over Puerto Rico Bond Price Volatility


A.M. Best has commented that the under review with negative
implications status, the Financial Strength Rating of C+ (Marginal) and
the Long-Term Issuer Credit Rating of "b-" of Cooperativa de Seguros
de Vida de Puerto Rico
(COSVI) (San Juan, Puerto Rico) remain

This comment reflects A.M. Best's ongoing concerns over the future of
COSVI's capital strength and operating efficiency. COSVI's Credit
Ratings (ratings) were placed under review with negative implications on
April 4, 2018 (see related press
), over concerns about COSVI's exposure to Puerto Rico bonds
and the volatility that represented to COSVI's absolute or risk-adjusted
capital at year-end 2017. At that time, A.M. Best indicated the ratings
would remain under review until A.M. Best received COSVI's 2017 annual
statement and conducted conversations with the company's management team
regarding the results contained in the filing.

Since that last rating action, COSVI has submitted its 2017 statutory
annual and first-quarter 2018 statements. However, the company revised
the cash flow testing results for year-end 2017. As indicated in COSVI's
year-end statutory statement, the depressed market value of Puerto Rico
securities at Dec. 31, 2017 would require the company to post additional
reserves under the cash flow testing analysis, as its invested asset
values and returns on investment would not be able to satisfy the
guarantees on the Segregated Asset Plan (SAP) annuity block of business.
At this point, the company is working with the Office of the
Commissioner of Insurance of Puerto Rico to satisfy and execute
initiatives discussed over the past few months.

Due to the drastic decline in market value of Puerto Rico-domiciled
bonds at year-end 2017, and the subsequent recovery of the value of
these domestic securities through May 2018, COSVI petitioned the
commissioner's office to make an allowance and recognize the increased
value of Puerto Rico bond obligations. Concurrently, COSVI has sold two
large tranches of these bonds in 2018 at a reduced cost, eliminating a
large unrealized loss that caused the unfavorable outcomes from the cash
flow test, while recognizing a substantially smaller realized loss.
Consequently, the sale of the at-risk securities rendered the cause of
the unfavorable cash flow testing inapplicable.

As the company works through the many initiatives, A.M. Best remains
concerned that some of the various alternatives chosen may have further
adverse effects on COSVI's capital strength and operating efficiency.
A.M. Best will continue to monitor the developments at COSVI closely and
will need to review the final cash flow testing results and audit
opinion in order to determine if there is an impending need for negative
rating action going forward in the near-to-medium term.

This press release relates to Credit Ratings that have been published
on A.M. Best's website. For all rating information relating to the
release and pertinent disclosures, including details of the office
responsible for issuing each of the individual ratings referenced in
this release, please see A.M. Best's
Rating Activity
web page. For additional information
regarding the use and limitations of Credit Rating opinions, please view
Best's Credit Ratings
. For information on the proper media
use of Best's Credit Ratings and A.M. Best press releases, please view
for Media - Proper Use of Best's Credit Ratings and A.M. Best Rating
Action Press Releases

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