MEXICO CITY--(BUSINESS WIRE)--AM 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 MAPFRE México, S.A. (MM) (Mexico City, Mexico). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect MM’s balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The stable outlooks reflect the underwriting strategy and results reported by the company since year-end 2017 to September 2019. Capital generation, along with capital sufficiency, will remain key to maintaining the stable outlooks. The ratings also reflect MM’s strategic importance to, and strategic alignment with, MAPFRE INTERNACIONAL, S.A., as well as the synergies and operating efficiencies derived from being a group member of MAPFRE S.A., the leading insurer in Spain.
MM’s ratings are derived from its solid risk-adjusted capitalization, its competitive position in Mexico’s insurance industry and appropriate ERM practices. Partially offsetting these positive rating factors are uncertain prospective opportunities for growth in an unwinding economy that has been slowing since last year.
MM operates as a composite insurer of life and non-life business and ranks among Mexico’s five-largest insurers based on written premiums.
MM’s written premiums in 2018 presented stable growth after adjusting for the biannual property-liabilities policy of Petróleos Mexicanos (PEMEX), a state-owned oil and gas company that MM started underwriting in 2015 and renewed in 2019 for USD 502 million of premium.
Technical income during 2018 and through September 2019 reflects company adjustments in claims controls and pricing done within its main segments; however, creation of catastrophic reserves limited net income during 2018. Financial income positively influenced the net result, which ended up at MXN 114 million (USD 5.8 million). As of September 2019, the company has improved its operating performance, posting a combined ratio slightly below 100%.
The very strong assessment for the company’s balance sheet strength reflects its risk-adjusted capitalization, which decreased slightly in 2018, in comparison to 2017 due to dividend payments to its holding company. In the medium term, AM Best expects changes in underwriting strategy to continue generating better net results and therefore in a more robust capital base that could give way to a stronger risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR).
ERM practices are well-established and implemented throughout the company and closely follow those set by MAPFRE S.A. This integration has benefited the company’s implementation of Mexico’s Solvency II-type regulations.
Positive rating actions on its ultimate parent, MAPFRE S.A., also could result in further positive rating actions for MM. Factors that may lead to negative rating actions include weakened risk-adjusted capitalization, either by significant capital outflows or by deterioration of its underwriting quality in subsequent years. In addition, negative rating actions for its ultimate parent would result in a downward movement of MM’s ratings.
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