A.M. Best Affirms Credit Ratings of CESCE México, S.A. de C.V. and CESCE Fianzas México, S.A. de C.V.

MEXICO CITY--()--A.M. Best has affirmed the Financial Strength Rating (FSR) of B++ (Good), the Long-Term Issuer Credit Rating (Long-Term ICR) of “bbb+” and the Mexico National Scale Rating (NSR) of “aa-.MX” of CESCE México, S.A. de C.V. (CESCEM). At the same time, A.M. Best has affirmed the FSR of B++ (Good), the Long-Term ICR of “bbb+” and the Mexico NSR of “aa-.MX” of CESCE Fianzas México, S.A. de C.V. (CESCEF). The outlook of these Credit Ratings (ratings) is stable. Both companies are domiciled in Mexico City, Mexico.

The rating affirmations of CESCEM and CESCEF reflect their affiliation with Compañía Española de Seguros de Crédito a la Exportación (CESCE), excellent risk-adjusted capitalization and well-structured reinsurance program. Partially offsetting these positive rating factors is CESCEM’s negative operating performance, along with the intense competition in Mexico’s credit insurance segment. In the case of CESCEF, the previously mentioned positive rating factors are partially offset by the company’s relatively short track record of operations and the intense competition in Mexico’s surety segment.

CESCEM is 51% owned by CESCE’s subsidiary, Consorcio Internacional de Aseguradores de Credito (CIAC), and 49% owned by Banco Nacional de Comercio Exterior, a Mexican development bank. CESCEM specializes exclusively in credit insurance. As of September 2016, the company ranked fourth in Mexico’s credit insurance segment.

CESCEF began operations in 2011 and is wholly owned by CIAC. CESCEF, which underwrites mostly administrative sureties, ranked 15th among the 16 companies in Mexico’s surety segment (as of September 2016) with a market share of less than 1%.

CESCEM and CESCEF leverage their operations through the underwriting and business expertise of their parent company, CESCE, adhering to its policies and procedures, as well as receiving reinsurance support from CESCE and its affiliates, which is supportive of the financial strength of its Mexican subsidiaries. Additionally, CESCE historically has maintained well-capitalized operations in both companies.

Both companies are capitalized strongly, as enterprise risk management practices are well-established and limit risk exposures substantially through a conservative underwriting and investment policy, comprehensive reinsurance program mainly placed with its parent and affiliates, and the remainder within counterparties with a good security level.

CESCEM has sustained this capitalization level despite posting negative results during the past four years, with 2015 generating the largest expected losses, which demonstrates the adequacy of its capital base. In addition, CESCEM’s capitalization levels have remained strong as a consequence of a premiums reduction during 2012-2014. This trend was finalized during 2015 for which the company posted an 18.8% growth, and a 46.6% growth in 2016. CESCEM’s ratings recognize the current inflection point in its operating performance, as efforts are being made to cleanse its business portfolio and enhance its product offerings at the same time it diversifies its client base. A.M. Best believes these changes should result in a medium-term improvement of its operating indicators.

For CESCEF, strong capitalization levels have been sustained through capital injections in 2012 and 2013, despite posting negative results during its first three years of operation. The company was able to post positive results in 2014, and this trend is expected to continue into 2018 with marginally positive results, reaching a turn-around of its business after five years of operation.

Negative rating actions will occur if A.M. Best’s views on parental support or strategic importance to its group for both subsidiaries deteriorate.

Positive rating factors that could result in an upgrade of CESCEM’s ratings include substantial improvement in its combined ratio as a result of higher efficiency, improvements in underwriting, and the successful strategy implementation for healthier premium growth in line with adequate capitalization levels. Additional factors that could result in a downgrade of CESCEM’s ratings include the continued deterioration of operating performance, or whether the company fails to meet its commercial or underwriting quality targets to levels that affect its capital base and render its risk-adjusted capitalization to levels that do not support the current ratings.

Positive factors that could lead to an upgrade of CESCEF’s ratings are maintaining positive operational performance and allowing the company to reach breakeven while maintaining strong capitalization levels. An additional negative rating factor that could result in a downgrade of CESCEF’s ratings is negative operating performance that significantly erodes its capital base to levels that are no longer supportive of the current ratings.

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Key insurance criteria reports utilized:

  • A.M. Best’s Ratings On a National Scale (Version Sept. 5, 2014)
  • Evaluating Non-Insurance Ultimate Parents (Version Feb. 24, 2012)
  • Evaluating Country Risk (Version May 2, 2012)
  • Insurance Holding Company and Debt Ratings (Version May 6, 2014)
  • Rating Members of Insurance Groups (Version Dec. 15, 2014)
  • Rating Surety Companies (Version Aug. 13, 2014)
  • Risk Management and the Rating Process for Insurance Companies (Version April 2, 2013)
  • Understanding Universal BCAR (Version April 28, 2016)

View a general description of the policies and procedures used to determine credit ratings. For information on the meaning of ratings, structure, voting and the committee process for determining the ratings and monitoring activities, please refer to “Understanding Best’s Credit Ratings.”

  • Previous Rating Date: Feb. 17, 2016
  • Date of Financial Data Used: Dec. 31, 2016

This press release relates to rating(s) that have been published on A.M. Best's website. For additional 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 Recent Rating Activity web page.

A.M. Best does not validate or certify the information provided by the client in order to issue a credit rating.

While the information obtained from the material source(s) is believed to be reliable, its accuracy is not guaranteed. A.M. Best does not audit the company’s financial records or statements, or otherwise independently verify the accuracy and reliability of the information; therefore, A.M. Best cannot attest as to the accuracy of the information provided.

A.M. Best’s credit ratings are independent and objective opinions, not statements of fact. A.M. Best is not an Investment Advisor, does not offer investment advice of any kind, nor does the company or its Ratings Analysts offer any form of structuring or financial advice. A.M. Best’s credit opinions are not recommendations to buy, sell or hold securities, or to make any other investment decisions. View our entire notice for complete details.

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Contacts

A.M. Best
Olga Rubo, +52 55 1102 2720, ext. 134
Associate Financial Analyst
olga.rubo@ambest.com
or
Alfonso Novelo, +52 55 1102 2720, ext. 107
Director, Analytics
alfonso.novelo@ambest.com
or
Christopher Sharkey, +1 908 439 2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, +1 908 439 2200, ext. 5644
Director, Public Relations
james.peavy@ambest.com

Contacts

A.M. Best
Olga Rubo, +52 55 1102 2720, ext. 134
Associate Financial Analyst
olga.rubo@ambest.com
or
Alfonso Novelo, +52 55 1102 2720, ext. 107
Director, Analytics
alfonso.novelo@ambest.com
or
Christopher Sharkey, +1 908 439 2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, +1 908 439 2200, ext. 5644
Director, Public Relations
james.peavy@ambest.com