MEXICO CITY--(BUSINESS WIRE)--A.M. Best has revised the issuer credit rating (ICR) and the Mexico National Scale Rating (NSR) outlooks to stable from negative and affirmed the financial strength rating (FSR) of A (Excellent), the ICR of “a+” and the NSR of “aaa.MX” of XL Seguros México, S.A. de C.V. (XLSM) (Mexico City). The outlook for the FSR remains stable.
The revised outlooks for the ICR and the NSR reflect A.M. Best’s reduced concern of XL Group Ltd (XL) (Bermuda) [NYSE: XL] with regard to the integration progress of the XL Catlin acquisition that closed in May 2015. While the XL organization still has a substantial amount of work to do in order to achieve the greatest efficiencies and long-term gains, A.M. Best believes that a significant portion of the uncertainty and risk around a complex transaction such as this one is now materially less to the organization.
The ratings reflect XLSM’s regional importance to XL, strong financial strength supported by its reinsurance program and financial support of its parent, which are part of the benefits of being part of the XL group. Partially offsetting these positive rating factors are the dependence on revenues from its reinsurer and its exposure to adverse credit events.
XLSM is an operating entity of XL, a leading provider of global insurance and reinsurance coverage to industrial, commercial and professional service firms, insurance companies and other enterprises on a worldwide basis. As of December 2015, XL had gross written premiums of USD 11 billion and assets of USD 58.7 billion.
XLSM was constituted and began operations in 2004 as a subsidiary of XL Swiss Holdings Ltd, which holds a 99.99% stake and is owned by XL. Through its Mexico City hub, XLSM provides local and multinational companies, as well as its network partners across Latin America and the Caribbean, with risk engineering and customized insurance solutions.
XLSM benefits from being integrated into the XL group, gaining operational leverage through the same practices and procedures, reinsurance, underwriting selection and enterprise risk management practices. XLSM serves as an underwriting channel for the group, ceding 99.9% of written premiums to its British affiliate. This enables the company to reduce its underwriting and leverage risk. However, given the nature of its operation, XLSM is susceptible to credit risk due to the high amount of reinsurance recoverables, which should not be a major concern given that these exposures are within the group.
Historically, XLSM has produced marginal losses; however in 2015, the company was able to produce positive bottom-line results due to efficiencies in operating and administrative expenses.
XL has historically demonstrated its support for XLSM by providing capital contributions during the past five years. During 2015, XLSM received another capital contribution equivalent to 18% of 2014 reported surplus. This, in addition to good profitability indicators for year-end 2015, resulted in improved risk-adjusted capital, as measured by Best’s Capital Adequacy Ratio (BCAR). During 2016, A.M. Best expects XLSM to continue its positive operating performance in addition to potentially benefit from reserves releases derived from the implementation of the new regulatory framework in Mexico.
If there are positive rating actions taken on the main operating subsidiaries of XL, the global scale ratings of XLSM will move in tandem. Likewise, if there are negative rating actions taken on XL, the ratings of the Mexican subsidiary will mirror the same adjustments. Additionally, negative rating movements might occur if A.M. Best’s view of strategic importance of XLSM toward its group weakens.
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 (Sept. 6, 2014)
- Analyzing Insurance Holding Company Liquidity (Mar. 25, 2013)
- Catastrophe Analysis in A.M. Best Ratings (Nov. 3, 2011)
- Evaluating Country Risk (May 2, 2012)
- Insurance Holding Company and Debt Ratings (May 6, 2014)
- Rating Members of Insurance Groups (Dec. 15, 2014)
- Risk Management and the Rating Process for Insurance Companies (April 2, 2013)
- Understanding BCAR for U.S. Property/Casualty Insurers (April 7, 2016)
- Understanding Universal BCAR (April 28, 2016)
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: May 5, 2015
- Date of Financial Data Used: March 31, 2016
This press release relates to rating(s) that have been published on A.M. Best's website. For additional rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page.
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