Best’s News & Research Service - August 23, 2018 11:02 AM (EDT)
A.M. Best Affirms Credit Ratings of HDI-Gerling de Mexico Seguros, S.A.
- August 23, 2018 11:02 AM (EDT)
Mexico City //BestWire// - A.M. Best has affirmed the Financial Strength Rating (FSR) of A (Excellent), the Long-Term Issuer Credit Rating (Long-Term ICR) of “a+” and the Mexico National Scale Rating of “aaa.MX” of HDI-Gerling de Mexico Seguros, S.A. (HDI-GM) (Mexico). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect HDI-GM’s balance sheet strength, which A.M. Best categorizes as very strong, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management.
The ratings also reflect HDI-GM’s substantial reinsurance support from its group through HDI Global Network AG (formerly known as HDI-Gerling Welt Service AG), which currently has an FSR of A (Excellent) and a Long-Term ICR of “a+”. Additionally, the ratings factor in HDI-GM’s integration with its ultimate parent company, HDI Haftpflichtverband der Deutschen Industrie V.a.G. (HDI V.a.G.), in terms of the business model and consistently provided financial support.
HDI-GM is a subsidiary of HDI Global Insurance Company (99.9%) and HDI Global Network AG (0.1%), which are both subsidiaries of HDI V.a.G. As of December 2017, the company’s business portfolio was distributed across fire (50%), liabilities (25%), marine (15%) and engineering risks (10%). HDI-GM’s business model consists of a very low premium retention level, standing at 0.5% at year-end 2017, which is supported
completely by an automatic facultative reinsurance agreement provided by its affiliate and minority shareholder, HDI Global Network AG.
The company’s risk-adjusted capitalization is strong, as measured by Best’s Capital Adequacy Ratio (BCAR), and it has benefited from several capital contributions from the group, aimed to support its growth and to maintain adequate reserves and capital sufficiency. The last capital contribution materialized in 2015.
HDI-GM’s exposure to underwriting risks is limited through its reinsurance agreement with HDI Global Network AG, which also renders lower levels of required capital. However, large recoverables from reinsurance are reflected in the assessment of its credit risk. A.M. Best does not view this as a major concern given the counterparty’s excellent level of security and the binding characteristics of the contract toward HDI-GM’s obligations.
In 2017, the company reported negative bottom-line results as a result of exchange currency losses, an increase in the loss ratio due to non-recurrent events and volatility in its income statement derived from its small premium retention level. Offsetting this vulnerability is the support from its group through commissions received by ceded reinsurance and by large reinsurance recoveries on claims.
A.M. Best expects HDI-GM’s performance to remain stable with the support provided by HDI V.a.G. and the binding characteristics of its reinsurance contract. If there are positive rating actions on the main operating subsidiaries of HDI/Talanx group as a result of a sustained track record of improved underwriting performance across core business segments, such as in the industrial lines and retail Germany divisions, as well as a strengthening of risk-adjusted capitalization levels, the global scale ratings on HDI-GM will move in tandem. Likewise, if there are negative rating actions on HDI V.a.G. as a result of a marked deterioration in operating performance or risk-adjusted capitalization, the ratings on the Mexico subsidiary will mirror those actions.
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:
- Best’s Credit Rating Methodology (Version, Oct. 13, 2017)
- Evaluating Country Risk (Version, Oct. 13, 2017)
- Understanding Universal BCAR (Version, May 14, 2018)
- Catastrophe Analysis in A.M. Best Ratings (Version, Oct. 13, 2017)
- Available Capital & Holding Company Analysis (Version, Oct. 13, 2017)
- A.M. Best’s Ratings On a National Scale (Version, 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: Aug. 17, 2017
- Date of Financial Data Used: Dec. 31, 2017
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 see A.M. Best’s Recent Rating Activity web page.
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