MEXICO CITY--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Rating of A- (Excellent), the Long-Term Issuer Credit Rating (Long-Term ICR) of “a-” and the Mexico National Scale Rating of “aaa.MX” of QBE de México Compañía de Seguros S.A. de C.V. (QBE de Mexico) (Mexico). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect QBE de Mexico’s balance sheet strength, which A.M. Best categorizes as very strong, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management.
QBE de Mexico’s balance sheet strength is underpinned by a risk-adjusted capitalization at strongest levels, as measured by Best’s Capital Adequacy Ratio (BCAR), also supported by a well-balanced reinsurance program backed by QBE Group subsidiaries and a continued conservative investment strategy. The ratings also recognize QBE de Mexico’s affiliation and strategic importance to its ultimate parent, QBE Insurance Group Limited, a leading property/casualty (P/C) insurer in Australia and worldwide, through QBE Latin America Insurance Holdings, S.L., which provides synergies and operating efficiencies. Offsetting these positive rating factors are the company’s relatively small size within Mexico’s very competitive P/C segment and the continued volatility in its operating results recently affected mainly by run-off businesses assigned by the group coupled with a rise in acquisition expenses.
The company, founded in Mexico more than 70 years ago, was acquired by QBE Insurance Group Limited in 2007. QBE de Mexico underwrites P/C insurance and ranked No. 24 in this segment with less than a 1% market share based on written premiums in 2016. The company operates mainly through a network of local brokers, along with independent agents and major trading partners.
QBE de Mexico’s historical capitalization, as measured by BCAR, remains at strongest levels supported by a capital infusion from its group in 2015 and positive bottom-line results in 2016. During the latter period, the company improved its underwriting performance based on positive effects derived from the implementation of Solvency II-type regulation and adjustments to its reinsurance program that substantially reduced QBE de Mexico’s retention on fire and other catastrophic lines of business. However, by third-quarter 2017, a series of non-recurring events involving miscellaneous run-off businesses assigned by the group and higher acquisition expenses, have pressured the company´s operating results. Even though volatility prevails, QBE de Mexico´s profitability during the past five years is reflected by an average return on equity of 5.3%. Furthermore, A.M. Best expects the company to converge toward stability in the short term given the nature of the recent non-recurrent events and further adjustments to its reinsurance program. The company’s investment strategy continues to be conservative and in line with local and group guidelines, and provides a steady flow of revenues to back its operating results.
The majority of QBE de Mexico’s reinsurance program is placed with Equator Reinsurances Limited (Equator Re) and QBE Reinsurance Corporation (QBE RE), reflecting the QBE Group’s support in terms of reinsurance. The company also is integrated to QBE Group in terms of enterprise risk management, systems and underwriting guidelines and it represents a strategic location through which to expand in Latin America.
Key rating drivers that could lead to positive rating actions for QBE de Mexico include sustained improvement in underwriting results that reduces the existing volatility in the bottom line and ultimately leads to strengthening the company’s capitalization. Key factors that could lead to negative rating actions include a decrease in the strategic importance of the company to QBE Group, which could diminish A.M. Best’s expectations of parental support toward the Mexico subsidiary, as well as deteriorating operating performance that leads to substantial weakening of its risk-adjusted capitalization.
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 Oct. 13, 2017)
- Catastrophe Analysis in A.M. Best Ratings (Version Oct. 13, 2017)
- Evaluating Country Risk (Version Oct. 13, 2017)
- Understanding Universal BCAR (Version Oct. 13, 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: Dec. 16, 2016
- Date of Financial Data Used: Sept. 30, 2017
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