Best’s News & Research Service - January 11, 2018 02:04 PM (EST)
A.M. Best Affirms Credit Ratings of Seguros Monterrey New York Life, S.A. de C.V.
- January 11, 2018 02:04 PM (EST)
Mexico City //BestWire// - A.M. Best has affirmed the Financial Strength Rating of A++ (Superior), the Long-Term Issuer Credit Rating (Long-Term ICR) of “aa+” and the Mexico National Scale Rating of “aaa.MX” of Seguros Monterrey New York Life, S.A. de C.V. (SMNYL) (Mexico City, Mexico). The outlook of these Credit Ratings (ratings) remains stable.
The ratings reflect SMNYL’s balance sheet strength, which A.M. Best categorizes as strongest, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The ratings reflect SMNYL’s strong integration with its parent company, New York Life Insurance Company (New York Life) (FSR A++, Long-Term ICR “aaa”), strengthened risk-adjusted capitalization, robust ERM, positive trend in operating performance and highly competitive position in Mexico’s life insurance segment. Partially offsetting these positive rating factors are its challenging expansion strategy within Mexico’s very competitive market and the uncertainty regarding future interest rate shifts.
SMNYL is the Mexico subsidiary of New York Life and a product of the Seguros Monterrey acquisition in 2000. SMNYL, established in Mexico in 1940, mainly underwrites life products through a solid agent network. As of June 2017, SMNYL was Mexico’s seventh-largest insurer with a market share of 5.4% and ranked fourth in the life segment with a market share of 9.6%. The company’s product portfolio is composed of individual life (64%), individual medical expenses (18%), group medical expenses (13%), group life (4%), and accidents and health (1%).
SMNYL benefits from its ultimate parent’s strong brand recognition. In addition, its integration within its group is key to the rating level, as New York Life actively supervises SMNYL’s strategy and operations, further enhancing its corporate governance and products innovation. Within New York Life’s international structure, the Mexico operation stands out as one of the most significant in terms of its good profitability and market presence, which makes the subsidiary’s operation and strategy very likely to be supported by the group if required.
During 2016, the company continued to grow above the market pace, improving its bottom-line results and posting good underwriting metrics in relation to the market and its past performance. This was achieved partially due to the effects of Solvency II-type regulation and the annual recognition of premiums, but also driven by stable benefits paid and acquisition costs. A.M. Best expects SMNYL’s premium to grow at a lower rate during 2017 while maintaining its good underwriting performance; net income is expected to benefit from larger financial product gains derived from higher interest rates, valuation of investments and foreign currency exchange. As the company tries to improve its market position in future years, there might be room for larger benefits paid or higher operating expenses. However, due to the company’s robust ERM and corporate governance capabilities, A.M. Best believes that SMNYL has sufficient technical tools and market expertise to achieve an adequate balance between growth and profitability. In addition, the company presents an adequate investment policy that supports the profitability of its operation.
Risk-adjusted capitalization is categorized as strongest and was further enhanced from regulatory changes in Mexico’s reserve requirements, following the best estimate of liabilities and the surplus derived from investment asset’s reclassification. Due to the nature of the life business and its investment component, SMNYL is susceptible to changes in interest rates, which are expected to increase during 2018. However, most of its investment portfolios are in line with the characteristics of it liabilities and group’s guidelines, placing the company in a favorable position to mitigate such increases.
A.M. Best considers SMNYL to be well-positioned at its current rating levels. Future positive rating factors that could lead to an improvement in the Long-Term ICR include: success with the company’s expansion goals; maintenance of its profitability trend; and strengthening of its capital base as a result of improved operating performance. Negative rating actions could occur if the company’s risk-adjusted capitalization becomes affected either by large capital outflows or by weaker operating performance in the medium term due to large and sustained increases in operational and acquisition expenses or benefits paid derived from the expansion strategy. Furthermore, negative rating actions could result if A.M. Best’s view on the strategic importance of the Mexican subsidiary to its group decreases or if there are negative rating actions for New York Life.
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:
- Evaluating Country Risk (Oct. 13, 2017)
- Understanding Universal BCAR (Oct. 13, 2017)
- A.M. Best Ratings on a National Scale (Oct. 13, 2017)
View a general description of the policies and procedures used to determine credit ratings. For information on the meaning of ratings, structure, voting and the committee process for determining the ratings and monitoring activities, please refer to Understanding Best’s Credit Ratings.
- Previous Rating Date: Jan. 11, 2017.
- Date of Financial Data Used: Sept. 30, 2017.
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