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 Tokio Marine HCC Mexico Compañía Afianzadora, S.A. de C.V. (TMHCC Mexico) (Mexico City, Mexico). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect TMHCC Mexico’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The ratings also reflect TMHCC Mexico’s affiliation with its parent company, Houston Casualty Company (HC), in terms of reinsurance protection, ERM and capital commitments. Limiting the ratings is the inherent risk of a recently created company executing its business plan, and the volatility of Mexico’s economy.
TMHCC Mexico is the Mexico-based surety subsidiary of HC; the former company received regulatory approval for operations in April 2019 and issued its first policy in July 2019. HC and TMHCC Mexico also have a sister company, Tokio Marine Compañía de Seguros, S.A. de C.V. (TMX), which is domiciled in Mexico. TMHCC Mexico takes advantage of TMX’s corporate structure, which provides additional support to the operation.
TMHCC Mexico is developing its presence in Mexico through a predominant mix of construction and commercial administrative surety, strongly backed by a comprehensive reinsurance program largely placed with its parent company.
TMHCC Mexico’s very strong balance sheet strength assessment is derived from its strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). To achieve its business targets, the company was capitalized with MXN 81.8 million (USD 4.3 million) as of July 2019 and might require more capital contributions as the operation evolves.
The adequate assessment of TMHCC Mexico’s operating performance reflects the successful track record of its seasoned management and underwriting team, and the operational leverage the company gains from being integrated into the Tokio Marine Group. However, the company’s business plan implementation is still evolving, and AM Best will keep monitoring its operating performance results.
As of year-end 2022, the company’s gross written premium stood at MXN 500 million, continuing the trend of surpassing the originally projected business volume, but generated a negative bottom-line result of MXN 10.4 million. Despite the significant variation in business volume, the company reports strict compliance with underwriting discipline and with its business model, coupled with several large policies.
As of June 2023, TMHCC Mexico posted positive bottom-line results, mainly due to contained management costs, and higher ceding commissions. The company’s loss ratio stood close to 0%.
Negative rating actions could take place if AM Best determines that the strategic importance of the Mexico subsidiary to the Tokio Marine group has decreased, or if the company experiences a deterioration in its risk-adjusted capitalization as a result of weak operating performance or capital outflows.
While AM Best does not consider it likely, positive rating actions could take place if Tokio Marine HCC Mexico's operating performance improves, while maintaining prudent capital management.
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