MEXICO CITY--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of A+ (Superior), the Long-Term Issuer Credit Rating of “aa-”, and the Mexico National Scale Rating of “aaa.MX” of Sompo Seguros Mexico, S.A. de C.V. (Sompo Mexico) (Mexico City, Mexico). The outlook of these Credit Ratings (ratings) is stable.
Sompo Mexico is a subsidiary of Sompo America Insurance Company (SAIC) and a member of Sompo Japan Nipponkoa Insurance Inc. (SJNK), which on a consolidated basis, has a balance sheet strength that AM Best categorizes as strongest, as well as strong operating performance, a favorable business profile and appropriate enterprise risk management (ERM).
The ratings also reflect Sompo Mexico’s integration and support from SJNK through SAIC, which provides synergies and operating efficiencies to the Mexico subsidiary. Sompo Mexico maintains the strongest level of risk-adjusted capitalization in AM Best’s view, good operating performance and a solid reinsurance program. Partially offsetting these positive rating factors is the company’s small market share, even though its combined ratio and profitability levels compare well with the industry.
Sompo Mexico initiated activities in 1998; the company underwrites property/casualty business and stands as a strategic hub from which SJNK plans to continue expanding operations into other Latin America markets. Sompo Mexico exclusively underwrites referred business from SJNK, whose ultimate parent is SOMPO Holdings, Inc.
Sompo Mexico’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), is categorized as strongest and is supported by the company’s small retention profile, as well as historical positive bottom-line results reflected in good profitability metrics and conservative profit retention policies. Sompo Mexico’s strong underwriting results are mainly a consequence of underwriting referred businesses for the Mexico operations of SJNK’s global clients, as well as commissions from a diversified reinsurance program with highly rated reinsurers, which includes SAIC as the program leader. In addition, the company’s conservative investment policies provide a steady flow of revenues in support of net income.
In 2018, Sompo Mexico maintained its steady operating performance, which reflected in an average five-year combined ratio of 16.2% and return on equity of 18%. Overall, operating performance metrics are in line with past performance, although with an increase in the loss ratio, which did not have an important impact in the bottom-line results. The company still benefits from being integrated into SJNK, gaining operational leverage through the same systems, procedures and ERM practices.
Positive rating actions taken on SJNK will most likely result in equivalent rating actions for Sompo Mexico, unless AM Best determines that the strategic importance of the Mexico subsidiary to SJNK has decreased. Sompo Mexico also has to maintain its strongest level of risk-adjusted capitalization, supported by good technical and bottom-line results, in order for positive rating actions to occur. Conversely, the ratings of Sompo Mexico will mirror any negative rating actions taken on SJNK. A material decline in SJNK’s risk-adjusted capitalization, due either to a consistent deterioration in the company’s operating performance or a negative impact from large-scale catastrophe events, also could cause downward rating pressure.
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