A.M. Best has assigned a financial strength rating of A- (Excellent), an issuer credit rating (ICR) of "a-" and a Mexico National Scale Rating of "aa.MX" to QBE de México Compañía de Seguros S.A. de C.V. (QBE de Mexico) (Mexico). The outlook assigned to all ratings is stable.
The ratings reflect QBE de Mexico's adequate risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR), overall good operating performance, conservative investment strategy and reinsurance support from the QBE Group. The ratings also recognize QBE de Mexico's affiliation and strategic importance to its ultimate parent, QBE Insurance Group Limited, a leading insurer in Australia and worldwide, through QBE Latin America Insurance Holdings, S.L., which provides synergies and operating efficienciesOffsetting these positive rating factors are the company's relatively small size within Mexico's very competitive property and casualty (P&C) segment and the volatility in results derived from the frequency and severity nature of its insurance portfolio.
The company was founded in Mexico more than 70 years ago and acquired by QBE Insurance Group Limited in 2007. The company underwrites P&C insurance and ranked 23rd in this segment with less than a 1% market share in terms of written premiums. QBE de Mexico operates through a network of independent agents, local brokers and major trading partners.
QBE de Mexico's historic capitalization is adequate as measured by BCAR, but its capital base experienced pressure during 2014 primarily as a result of two large claims in its fire line of business, which increased its loss ratio to 47.4% from historic average levels of around 35% in previous years. The company has adjusted its underwriting practices and is reviewing its risk retention policies in order to mitigate the impact of these deviations over its regulatory capital and bottom line results. In addition, given its strategic importance to QBE Group, A.M. Best expects support from the parent company in terms of a capital to address regulatory challenges and/or fund growth opportunities.
QBE de Mexico's good underwriting practices have resulted in solid profitability metrics over the past five years, reflected in an average combined ratio of 92% and an average return on equity of 5.3%. The company's investment policies are conservative and in line with local and group guidelines, and provide a steady flow of revenues to back its positive operating results.
The majority of the reinsurance program is placed with Equator Reinsurance Limited (Equator Re) and QBE Reinsurance Corporation (QBE RE), reflecting the QBE Group's support in terms of reinsurance. The company is also integrated to QBE Group in terms of enterprise risk management, systems and underwriting guidelines and represents a strategic location to expand in Latin America.
Key rating drivers that could lead to positive rating actions for QBE de Mexico include sustained improvements of underwriting results that contribute to reduce the existing volatility in the bottom line, ultimately leading to a strengthened capitalization of the company. Key factors that could lead to negative rating actions include a decrease in the strategic importance of the company to QBE Group, which could diminish A.M. Best's expectations of parental support toward the Mexican subsidiary, as well as deteriorating operating performance that leads to substantial weakening of its risk-adjusted capitalization.
The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
- A.M. Best's Ratings on a National Scale
- Catastrophe Analysis in A.M. Best Ratings
- Evaluating Country Risk
- Equity Credit for Hybrid Securities
- Insurance Holding Company and Debt Ratings
- Rating Members of Insurance Groups
- Risk Management and the Rating Process for Insurance Companies
- Understanding Universal BCAR
View a general description of the policies and procedures used to determine credit ratings. Also in accordance with Mexican regulations, the following is a link to required disclosures A.M. Best America Latina Supplementary Disclosure.
- Previous Rating Date: Not rated
- Date of Financial Data Used: June 30, 2015
This press release relates to rating(s) that have been published on A.M. Best's website. For additional rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best's Ratings & Criteria Center
A.M. Best's credit ratings are independent and objective opinions, not statements of fact. A.M. Best is not an Investment Advisor, does not offer investment advice of any kind, nor does the company or its Ratings Analysts offer any form of structuring or financial advice. A.M. Best's credit opinions are not recommendations to buy, sell or hold securities, or to make any other investment decisions. View our entire notice for complete details.
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