MEXICO CITY--(BUSINESS WIRE)--A.M. Best has downgraded the Financial Strength Rating to C (Weak) from C++ (Marginal), the Long-Term Issuer Credit Rating to “ccc+” from “b+” and the Mexico National Scale Rating to “ccc+.MX” from “bb.MX” of Nezter Seguros, S.A. de C.V. (Nezter Seguros) (Mexico City, Mexico). Additionally, A.M. Best has placed these Credit Ratings (ratings) under review with negative implications.
The rating downgrades reflect the substantial reduction in Nezter Seguros’ risk-based capitalization within a year, a significant delay in implementing its business plan, and the company’s weak operating performance mainly derived from the lack of consistency between revenues and the company’s cost structure. Partially offsetting these rating factors is the company’s still strong risk-adjusted capitalization as of December 2016.
In 2015, Nezter Seguros was authorized as a newly constituted local property title insurance company by the Mexico Minister of Finance after it had acquired the former First American Title Insurance Mexico, S.A. Nezter Seguros intends to place itself within a non-saturated market that consists of just three participants. Initial underwriting activity took place during 2016. This recent acquisition aspect places a burden on company’s brand recognition and is viewed as a challenge in implementing its growth strategy.
As of December 2016, Nezter Seguros underwrote a considerably small amount of policies that couldn’t mitigate the company’s operating costs and the fees from an excess of loss agreement with Lloyd’s, which resulted in net losses for Nezter Seguros. These two factors will continue to erode the already diminishing capital base, assuming Nezter Seguros doesn’t receive additional capital injections or fails to underwrite sufficient premium volume.
Nezter Seguros had a strong capital position as of December 2016, as measured by Best’s Capital Adequacy Ratio (BCAR), driven by the fact that it has issued very low levels of premium since being authorized.
The under review with negative implications status considers the uncertainty regarding Nezter Seguros’ ability to replenish its capital base, as well as the feasibility to implement its original business model.
Negative rating actions could take place if risk-adjusted capitalization erodes to a level that is no longer supportive of the current ratings, or if the company fails to cover regulatory solvency requirements. Conversely, positive rating actions could occur if the company is able to expand its capital base through additional capital contributions, thereby reducing the burden from its fixed expenses, or if Nezter manages to underwrite a volume of premium that is more in line with its original business plan and cost structure.
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)
- BCAR for Title Insurance Companies (Version Aug. 3, 2016)
- Evaluating Country Risk (Version May 2, 2012)
- Rating Title Insurance Companies (Version Aug. 3, 2016)
- 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. 25, 2016
- Date of Financial Data Used: Dec. 31, 2016
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