MEXICO CITY--(BUSINESS WIRE)--A.M. Best has assigned a financial strength rating of A- (Excellent), an issuer credit rating of “a-” and a Mexico National Scale Rating of “aa.MX” to MAPFRE Fianzas, S.A. (MAPFRE Fianzas) (Mexico City, Mexico). The outlook for all ratings is stable.
The ratings reflect financial strength and support from MAPFRE S.A., MAPFRE Fianzas’ role as a complementary business line of MAPFRE Tepeyac, S.A., and in turn, the importance of MAPFRE Tepeyac, S.A. as a subsidiary of MAPFRE S.A. The ratings also reflect MAPFRE Fianzas’ profitability, solid reinsurance program and adequate risk-adjusted capitalization. Partially offsetting these positive factors are the company’s operational performance in relation to the market, its exposure to contingent claims and its premium leverage.
MAPFRE Fianzas ranks 10th by gross written premium in Mexico’s surety industry. The company’s portfolio comprises 90% administrative, 6% judicial, 3% fidelity and 1% credit. MAPFRE Fianzas’ corporate practices are in line with those of MAPFRE Tepeyac, S.A. and with those of MAPFRE S.A. Although the company stands on a legal basis as a subsidiary of MAPFRE Tepeyac, S.A., its strategy and operations are directed as a boutique-business line focused on maintaining market presence and complimenting the services provided by its immediate parent.
Given the low volume of premiums in relation to the other participants, MAPFRE Fianzas has registered high growth rates in the past few years. It grew 38.1% in 2014 and presented deterioration in its loss ratio (given one important claim the company received from a governmental institution beneficiary), which took the loss ratio to 9.3% from 1.1%. Its combined ratio also deteriorated driven by higher acquisition costs. This is a trend that had continued to rise until June 2015 and is expected to be reversed or at least stabilized to maintain premium sufficiency. Return on equity for 2014 stood slightly below the market and probably will remain in that position in2015 given the latest performance indicators.
Although MAPFRE Fianzas’ risk-adjusted capitalization is adequate, it is exposed to important business risk derived from contingent claims that represented 48.7% of its reported surplus in comparison with that of the industry’s approximately 12%. This exposure could lead to unexpected impacts in profitability and deterioration of its capital base. Such scenarios have been incorporated into the rating and present a key point to review in years to follow. The good reinsurance program provided by its affiliates, MAPFRE RE, Compañía de Reaseguros, S.A. and MAPFRE GLOBAL RISKS, Compañía Internacional de Seguros y Reaseguros S.A. in the form of proportional and facultative programs, partially mitigates these exposures. The company’s gross premium leverage stands at 160%, well above that of the industry standing of 107%.
Positive rating actions could occur if MAPFRE Fianzas improves its underwriting quality, resulting in reduced claims, and achieves lower acquisition costs, while at the same time continuing to achieve its growth targets in conjunction with consistent risk-adjusted capitalization measures. Positive rating actions on its ultimate parent, MAPFRE S.A., could also result in positive rating actions on MAPFRE Fianzas. Negative rating actions could occur if the company’s profitability is affected by materialized contingent claims or a higher costs structure that erode its capital base to such extent that the current levels of risk-adjusted capitalization do not support the current ratings or if risk factors, like business risk, increase drastically requiring larger capital. In addition, negative rating actions on its ultimate parent would result in a downward movement of MAPFRE Fianzas’ 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
- Evaluating Country Risk
- Insurance Holding Company and Debt Ratings
- Rating Members of Insurance Groups
- Rating Surety Companies
- Risk Management and the Rating Process for Insurance Companies
- Understanding Universal BCAR
View a general description of the policies and procedures used to determine credit ratings. Also in accordance with Mexican regulations, the following is a link to required disclosures – A.M. Best America Latina Supplementary Disclosure.
- Previous Rating Date: Not rated.
- Date of Financial Data Used: Jun. 30, 2015
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