MEXICO CITY--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Rating of B+ (Good), the Long-Term Issuer Credit Rating of “bbb-” and the Mexico National Scale Rating of “aa-.MX” of Quálitas Compañía de Seguros S.A.B. de C.V. (Quálitas) (Mexico City, Mexico). The outlook of these Credit Ratings (rating) is stable.
The ratings reflect Quálitas´ balance sheet strength, which A.M. Best categorizes as adequate, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.
Quálitas’ balance sheet strength is underpinned by risk-adjusted capitalization being at the strong level, as measured by Best’s Capital Adequacy Ratio (BCAR), sustained premium sufficiency and profitability metrics, the company’s consistent leading position in the auto insurance segment and strong distribution network. Partially offsetting these positive rating factors are the company’s elevated underwriting leverage and limited diversification in terms of business lines.
Quálitas operates through a network of local agents, financial institutions and service offices and has established a strong distribution capability throughout Mexico. This has enabled the company to maintain its leading market position in Mexico’s auto insurance segment in challenging competitive conditions and reach a 31.3% market share.
Quálitas’ capital base has strengthened over time as a result of its good underwriting performance, reflected in the 15% compound annual growth rate of its capital over the past five years. In 2016, profitability was enhanced as a result of premium growth and coupled with the positive effect from non-recurring adjustments derived from implementing Solvency II-type regulations, which improved underwriting practices. In 2017, Quálitas managed to sustain profitability through both underwriting and investment results, enabling the company to generate a return on equity of 37.2%, despite a slowdown in auto sales and increased burglary rates.
Historically, the company has operated with higher than expected underwriting leverage for an auto insurance provider. At the end of 2017, the company’s underwriting leverage, as measured by the ratio of net premiums written to capital, decreased from 6.1 to 5.1 times, mainly driven by increased reinvestment of earnings and premium growth in line with the market pace. A.M. Best expects Quálitas´ dividend policy and growth targets to continue supporting current underwriting leverage trends.
Key rating drivers that could lead to positive rating actions for Quálitas 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 profits. Key factors that could lead to negative rating actions include a further deterioration in its risk-adjusted capitalization to levels no longer supportive of the current ratings, whether derived from a substantial decline in profitability, aggressive dividend policy or strong growth in premiums without an appropriate capital support.
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)
- Available Capital & Holding Company Analysis (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: June 1, 2017
- Date of Financial Data Used: March 31, 2018
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