MEXICO CITY--(BUSINESS WIRE)--A.M. Best has upgraded the financial strength rating to B+ (Good) from B (Fair) and the issuer credit rating to “bbb-” from “bb” of Qualitas Compañía de Seguros S.A.B. de C.V. (Qualitas) (Mexico City, Mexico). The outlook for each rating is stable. Additionally, A.M. Best has assigned a Mexico National Scale rating of “a-.MX” with a stable outlook to the company.
The upgrade reflects improvements in A.M. Best’s view of Qualitas’ risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio (BCAR), premium sufficiency and profitability metrics that continue to compare positively with its peers in the auto insurance segment, where the company maintains a leading position and outstanding distribution network. Partially offsetting these positive factors are the company’s consistent elevated underwriting leverage 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, which improved in 2015. This has enabled the company to maintain its leading market position in Mexico’s automobile insurance segment in challenging competitive conditions, reaching a 25.3% market share.
Qualitas’ capitalization has strengthened over time as a result of its good underwriting performance, reflected in a 16.1% compound annual growth rate of its adjusted capital during the past five years. Profitability metrics, such as return on equity, have been pressured over the past three years 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. Despite these factors, Qualitas’ return on equity still compares well above its peers, standing at a 15.2% in 2015. Moreover, the company has adjusted its underwriting practices and A.M. Best expects these amendments to improve technical results during 2016.
Historically, the company has operated with an underwriting leverage considered higher than expected for an automobile insurance provider. At the end of 2015, the company’s underwriting leverage, as measured by the ratio of net premiums written to capital, remains relatively elevated at 4.4 times, although this is not a major concern at the moment because the company has maintained premium sufficiency for the past five years.
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 earnings. Key factors that could lead to negative rating actions include a sustained deterioration in operating performance that leads to a significant decline in its risk-adjusted capitalization to levels 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
- Catastrophe Analysis in A.M. Best Ratings
- Evaluating Country Risk
- Insurance Holding Company and Debt Ratings
- Rating Members of Insurance Groups
- 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: March 31, 2015
- Date of Financial Data Used: December 31, 2015
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