MEXICO CITY--(BUSINESS WIRE)--AM Best has removed from under review with developing implications and affirmed the Financial Strength Rating (FSR) of A- (Excellent), the Long-Term Issuer Credit Rating (Long-Term ICR) of “a-” and the Mexico National Scale Rating of “aaa.MX” of Zurich Aseguradora Mexicana, S.A. de C.V. (ZAM) (formerly QBE de México Compañía de Seguros S.A. de C.V.) (Mexico). The outlook assigned to these Credit Ratings (ratings) is stable.
After Zurich Insurance Group Ltd (Zurich group) announced its acquisition of QBE Group’s Latin American insurance operations, AM Best on March 2, 2018, placed the ratings of ZAM under review with developing implications in response to the uncertainty of the strategic position of the company once the new ownership took place. The under review status was extended on Jan. 24, 2019, as the company’s strategic position within Zurich group had yet to be defined.
The ratings reflect ZAM’s balance sheet strength, which AM Best categorizes as very strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management.
The ratings also recognize ZAM’s affiliation and strategic importance to Zurich group, its ultimate parent, which provides synergies and operating efficiencies. Offsetting these positive rating factors are the company’s small size within Mexico’s insurance market and the volatility in its operating results.
The stable outlook reflects the strength of the company’s risk-adjusted capitalization, and is supported further by the positive effects of the shift in business strategy.
The company, which was founded in Mexico more than 70 years ago, was acquired in 2007 by QBE Insurance Group Limited. During 2018, Zurich group entered into an asset purchase agreement to acquire QBE Group’s insurance operations in Argentina, Brazil, Colombia, Ecuador and Mexico with the purpose to increase its presence and growth in the Latin American market. ZAM will serve as a strategic hub for the Zurich group, mainly underwriting life insurance, along with accident and health insurance (affinity business lines). A greater part of the portfolio corresponding to the business lines of fire, liabilities, marine and cargo, technical and catastrophe will be transferred to Zurich Compañia de Seguros, S.A., and the rest will undergo a run-off process.
ZAM’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), remains at the assessed level of strongest, supported by positive bottom-line results achieved in 2018 and as of July 2019. During this period, the company improved its operating performance, aided by the positive effects of reserve releases, and adjustments to its reinsurance program that substantially reduced ZAM’s retention on property/casualty lines of business. Analogously with the new market strategy, the affinity business lines will be 100% retained.
The company’s investment strategy continues to be conservative and in line with local and group guidelines, and provides a steady flow of revenues to back its operating results.
Key rating drivers that could lead to positive rating actions for ZAM include a sustained improvement in underwriting performance as a result of the new business strategy being successfully executed, thereby reducing existing volatility in its bottom-line results and ultimately leading to strengthening of the company’s risk-adjusted capitalization. Key factors that could lead to negative rating actions include a decrease in the strategic importance of the company to Zurich group, which could diminish AM Best’s expectations of parental support toward the Mexico subsidiary, as well as a significant decline in its risk-adjusted capitalization to levels no longer supportive of the current ratings.
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