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 Grupo Nacional Provincial S.A.B. (GNP) (Mexico City, Mexico). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect GNP’s balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, favorable business profile and appropriate enterprise risk management.
GNP is the largest insurer in Mexico based on gross written premium (GWP). The company operates as a composite insurer of life and non-life business; core business segments include life, health and automobile coverage.
Dividend payments, driven by the company’s targets on capital efficiency, have partially restricted AM Best’s view of GNP’s risk-adjusted capitalization in the past. However, in recent years, GNP’s balance sheet strength, as measured by Best’s Capital Adequacy Ratio (BCAR), is very strong, having benefited from additional equity surplus due to changes in statutory accounting at year-end 2016, and positive bottom-line results during 2016-2019.
The additional equity surplus is a consequence of implementing accounting measures based on market value approximations of assets and liabilities. GNP follows conservative practices in terms of its asset-liability management. In addition, the company’s balance sheet strength is reinforced by its good reinsurance program placed with highly rated counterparties, which protects the company’s risk retention adequately.
In 2019, GNP reported 12.9% growth in GWP, while maintaining profitable business in its core segments. The company’s operating performance remained solid, having benefited from better underwriting performance metrics, and a consistent improvement in the investment income. Policies were aligned to market changes, and the pricing model was improved to gain competitiveness and market share in low risk areas. As of September 2020, the company continued to post adequate underwriting results, investment yield and net income of MXN 3.4 billion.
Positive rating actions could take place if GNP is able to maintain its current level of risk-adjusted capitalization while improving its bottom-line results and profitability indicators to levels more in line with highly rated peers. Negative rating actions could take place if the company’s additional equity erodes with a sustained negative operating performance, or if the amount of dividends paid negatively impacts the company’s risk-adjusted capitalization to a level that is no longer supportive of the current rating levels.
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