Best’s News & Research Service - February 28, 2019 03:59 PM (EST)
AM Best Revises Outlooks to Stable for Insignia Life S.A. de C.V.
- February 28, 2019 03:59 PM (EST)
Mexico City //BestWire// - AM Best has revised the outlooks to stable from positive and affirmed the Financial Strength Rating of B+ (Good), the Long-Term Issuer Credit Rating (Long-Term ICR) of “bbb-” and the Mexico National Scale Rating of “aa-.MX” of Insignia Life S.A. de C.V. (Insignia) (Mexico).
The Credit Ratings (ratings) reflect Insignia’s balance sheet strength, which AM Best categorizes as adequate, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The revised outlooks to stable from positive reflect Insignia’s risk-adjusted capitalization, which has been pressured by an important volume of intangible assets derived from a strategic investment in systems, although AM Best expects such pressure to decrease as the company continues to improve its profitability metrics, and the amortization of intangibles have a positive impact on the balance sheet strength of Insignia in the short to middle term. The ratings also consider sound underwriting practices, a highly experienced management team and ongoing improvements in ERM. Offsetting these positive rating factors is the company’s relatively small size within Mexico’s life insurance industry.
Insignia initiated operations in Mexico in 2008. The company underwrites individual and group life insurance. Insignia operates through a commercial network of more than 3,000 agents and 12 offices in more than 10 of the principal cities in Mexico.
Insignia’s risk-adjusted capitalization continues to improve, as measured by Best’s Capital Adequacy Ratio (BCAR), reflecting shareholder commitment to support the company’s growth strategy while maintaining adequate capitalization. In 2015, it was AM Best’s view that the insurer’s risk-based capital was pressured due to a material real estate investment and negative bottom-line results. Insignia’s holding company made several capital injections in the total amount of MXN 59.4 million in 2015 to address the real estate investment and to support the company’s growth. In the following year, risk-adjusted capitalization improved due to a MXN 33 million infusion, coupled with the implementation of Solvency II-type regulation effects. Risk-adjusted capitalization further strengthened in 2017 as a result of the sale of the real estate asset, a MXN 23 million contribution and MXN 63 million in positive bottom-line results. In 2018, Insignia’s capital base continued to be enhanced through consistent reinvestment of earnings that allowed the company to mitigate pressure resulting from an important investment in systems, which was deducted as intangible assets from its BCAR metrics. AM Best expects Insignia to maintain improvements in risk-adjusted capitalization metrics through proper management of intangibles in conjunction with consistent profitability in order to avoid further pressure in capital.
As a result of Insignia’s rapid premium expansion, the company historically has relied on its holding company to maintain sound capitalization levels through capital infusions. However, since 2017, with the sale of the real estate investment and positive bottom-line results, such dependency on the holding company diminished.
The company’s investment strategy continues to be conservative and provides a steady flow of revenues to back its operating results. Underwriting practices continue to be characterized by premiums sufficiency in 2018 and are in line with its industry peers. Furthermore, Insignia´s return on assets of 2.9% reflects continued profitability and increasing asset base.
AM Best expects Insignia to strengthen its ERM framework through ongoing improvements involving systems updates, an embedded value tool and an internal economic capital model.
Key factors that could lead to positive rating actions for Insignia include material improvement of risk-based capital metrics, good underwriting results that translate into sound profitability ratios and a reduction of its dependence on capital injections by its holding company. Key factors that could lead to negative rating actions include substantial deterioration in capitalization, as measured by Best’s Capital Adequacy Ratio, in a short period of time, or diminished capital support from its holding company, as well as deviations from AM Best’s expectation of the company’s improving operating performance.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of AM 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:
- AM Best’s Ratings On a National Scale (Version Oct. 13, 2017)
- Available Capital and Holding Company Analysis (Version Oct. 13, 2017)
- Evaluating Country Risk (Version Oct. 13, 2017)
- Understanding Universal BCAR (Version May 14, 2018)
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: Feb. 16, 2018
- Date of Financial Data Used: Dec. 31, 2018
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