MEXICO CITY--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Rating of B+ (Good), the Long-Term Issuer Credit Rating of “bbb-”, and the Mexico National Scale Rating of “a-.MX” of Qualitas Compañía de Seguros S.A.B. de C.V. (Qualitas) (Mexico City, Mexico). The outlook for these Credit Ratings (rating) is stable.
The rating affirmations reflect Qualitas’ adequate risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), improved premium sufficiency and profitability metrics, the company’s consistent leading position in the auto insurance segment and strong distribution network. Partially offsetting these positive rating factors are the company’s elevated underwriting leverage, pressure on capitalization derived from important growth in 2016 and limited diversification in terms of business lines.
Qualitas operates through a network of local agents, financial institutions and service offices and has established a strong distribution capability throughout Mexico. This has enabled the company to maintain its leading market position in Mexico’s auto insurance segment in challenging competitive conditions, reaching a 31.5% market share.
Qualitas’ capital base has strengthened over time as a result of its good underwriting performance, reflected in the 12.5% compound annual growth rate of its adjusted capital over the past five years. Profitability metrics, such as return on equity, were pressured in the past given the increase in Qualitas’ capital base, the highly competitive environment in its automobile insurance niche and lower yields on financial products due to the global low interest rate environment. However, in 2016, profitability was enhanced as a result of premium growth coupled with the positive effect from non-recurring adjustments. These effects were derived from the implementation of Solvency II-type regulation and improved underwriting practices, enabling the company to generate a return on equity of 27.6% in 2016. A.M. Best expects Qualitas’ underwriting practices to improve technical results again in 2017.
Historically, the company has operated with higher than expected underwriting leverage for an auto insurance provider. At the end of 2016, the company’s underwriting leverage, as measured by the ratio of net premiums written to capital, increased from 4.3 to 6.1 times, mainly driven by dividend payments, as well as by above average market premiums growth.
Key rating drivers that could lead to positive rating actions for Qualitas include a sustained market-leading position along with continued favorable trends in risk-adjusted capitalization supported by positive technical results and an adequate reinvestment of profits. Key factors that could lead to negative rating actions include a further deterioration in its risk-adjusted capitalization to levels no longer supportive of the current ratings, whether derived from a substantial decline in profitability, aggressive dividend policy or strong growth in premiums without an appropriate capital support.
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)
- Analyzing Insurance Holding Company Liquidity (Version March 25, 2013)
- Catastrophe Analysis in A.M. Best Ratings (Version Nov. 3, 2011)
- 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)
- Risk Management and the Rating Process for Insurance Companies (Version April 2, 2013)
- Understanding Universal BCAR (Version May 1, 2017)
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: June 1, 2016
- Date of Financial Data Used: March 31, 2017
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