MEXICO CITY--(BUSINESS WIRE)--A.M. Best has revised the outlooks to positive from stable and affirmed the Financial Strength Ratings of B++ (Good) , the Long-Term Issuer Credit Ratings of “bbb+” and the Mexico National Scale Ratings of “aa-.MX” of Assurant Daños México, S.A. (ADM) and Assurant Vida México, S.A. (AVM). Both companies are domiciled in Mexico City, Mexico.
The outlook revisions to positive from stable reflect ADM’s and AVM’s improving trend in operating performance and capitalization metrics for both Mexican subsidiaries.
The Credit Ratings (ratings) for ADM and AVM reflect their affiliation and strategic importance to Assurant, Inc. as a stepping stone to grow in the Latin America market, strong levels of risk-adjusted capitalization and improving operating performance. The ratings also consider the strong reinsurance structure mainly supported by the group. Partially offsetting these positive rating factors are the small market share of both companies and the possibility of increasing competition within their niche markets.
ADM and AVM initiated operations in 2004 and are owned by Assurant Holding Mexico, S. de R.L. de C.V., which is part of Assurant, Inc., the subsidiaries’ ultimate parent. Distribution channels for both companies are based on sales through financial institutions, auto companies and telecom carriers, among others.
ADM and AVM follow their group’s underwriting, enterprise risk management and corporate governance practices, receive reinsurance support and benefit from its brand recognition in order to expand their market share in Mexico. Both subsidiaries also benefit from their group’s capital contributions, whenever required, in support of growth targets.
During 2016, ADM further strengthened its risk-adjusted capitalization levels mainly as a result of higher reinsurance cession to its group and improving operating performance. ADM’s reduction in premium retention, in conjunction with efforts to enhance its operational cost efficiency, generated improvements in acquisition and operating expense ratios. In addition, improved investment income mainly driven by foreign exchange rate gains, resulted in stronger profitability metrics as demonstrated by a 28.6% return on equity at year end.
During 2016, AVM’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), remained strong due to a capital injection of MXN 103 million to support growth and coverage of regulatory capital requirements. Operating performance also improved as reflected by a downward trend in acquisition and operating expense ratios. As a result of AVM’s improvements in operating performance, A.M. Best expects the subsidiary to reduce its dependence on capital injections from its group in the midterm.
Factors that could lead to positive rating actions for ADM include continuity in good operating performance, while maintaining its strong capital adequacy ratios, as measured by BCAR. On the contrary, negative rating actions could take place if substantial deterioration of operating performance or aggressive growth in premiums lead to a drop in risk-adjusted capitalization to levels no longer supportive of the current ratings.
Positive rating factors that could lead to an upgrade for AVM are sustained improvements in underwriting results that continue to strengthen its capital base and reduce its dependence on capital support from its group. Negative ratings factors that could result in a downgrade include material deterioration in underwriting performance that results in a decline in risk-adjusted capitalization.
Negative rating actions also will occur if A.M. Best’s considers that parental support or strategic importance to its group for both subsidiaries deteriorates.
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. 03, 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 April 28, 2016)
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: Feb. 25, 2016
- Date of Financial Data Used: Dec. 31, 2016
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