MEXICO CITY--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Rating of A- (Excellent), the Long-Term Issuer Credit Rating of “a-” and the Mexico National Scale Rating of “aaa.MX” of Stewart Title Guaranty de México, S.A. de C.V. (STGM) (Mexico). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect STGM’s balance sheet strength, which A.M. Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management. The ratings also reflect the integration of the local subsidiary to its parent company, Stewart Title Guaranty Company (STGC) and to the Stewart Title Group in terms of the business model and operational support. Offsetting these positive rating factors are the company’s small market share in Mexico’s insurance industry and its concentration in a single line of business.
STGM is a subsidiary of STGC, located in Houston, TX. In addition to Mexico, STGC also offers products through its subsidiaries to markets in the United States, the European Union, Australia, Costa Rica and China. Given the specialized nature of the title product and the institutional strategy, STGM’s sales efforts are focused on business referred by the parent company on existing customers, which generates a reduced number of policies per year in a Mexican market consisting of just two participants.
According to Best’s Capital Adequacy Ratio, STGM’s capitalization is very strong, with an upward trend in capital and surplus growth during the past five years, mainly driven by consistent positive bottom-line results, with underwriting risk being the main component for required capital. Support from STGC in the past has come through capital injections directed to help strengthen the business when required.
The operating performance of STGM has been positive in the past five years, which can be attributed mainly to the optimization of the business strategy carried out in 2012-2013. This allowed STGM to reduce expenses through a variable cost scheme. However, the company is exposed to foreign exchange risk, as a big part of the investment portfolio is in U.S. currency, and volatility, due to its small size.
Positive rating actions on the main operating subsidiaries of Stewart Title Group that result from positive underwriting performance trends, accompanied by growth in risk-adjusted capitalization, will prompt the ratings of STGM to move in tandem. Conversely, negative rating actions on Stewart Title Group due to a significant deterioration in operating performance that causes a decline in risk-adjusted capitalization levels, or if the group experiences liquidity issues, or a significant increase in leverage, will also result in a ratings downgrade for the Mexico subsidiary.
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