MEXICO CITY--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of A- (Excellent), the Long-Term Issuer Credit Rating of “a-” (Excellent) and the Mexico National Scale Rating of “aaa.MX” (Exceptional) of Stewart Title Guaranty de México, S.A. de C.V. (STGM) (Mexico). The outlook of these Credit Ratings (ratings) is stable.
STGM is a member of Stewart Title Group, which on a consolidated basis has a balance sheet strength that AM Best assesses as very strong, as well as adequate operating performance, a 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 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, Texas, which, in addition to Mexico, 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 focus on business referred by the parent company on existing customers, which generates a reduced number of policies per year.
STGM’s risk-adjusted capitalization stands at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), with an upward trend in capital and surplus growth during the past five years, mainly driven by consistent positive bottom-line results, with investment and underwriting risks being the main components for required capital. Support from STGC in the past has come through capital injections, with the most-recent one in 2012, directed to help strengthen the business when required.
Premium growth in 2020 was limited by the closing of public registries and notary offices due to COVID-19, preventing investigation on new business, a core process for underwriting. During an unprecedented year for title insurance operations, STGM’s flexible costs structure provided significant advantages to the company, allowing it to optimize expenses and achieve positive bottom-line results through investment income.
For 2021 and going forward, STGM expects to regain usual underwriting operations once public offices reopen, supported by its referred business system.
Positive rating actions taken 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 taken on Stewart Title Group due to a significant deterioration in operating performance that results in a decline in its risk-adjusted capitalization levels, or if the group experiences liquidity issues, or a significant increase in leverage, also will result in rating downgrades for the Mexico subsidiary.
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