Best’s News & Research Service - November 04, 2020 02:20 PM (EST)
AM Best Affirms Credit Ratings of BUPA México, Compañía de Seguros, S.A. de C.V.
- November 04, 2020 02:20 PM (EST)
Mexico City //BestWire// - AM Best has 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 BUPA México, Compañía de Seguros, S.A. de C.V. (BUPA Mexico) (Mexico). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect BUPA Mexico’s role as a subsidiary of Bupa Insurance Company (BIC), which on a consolidated basis has a balance sheet strength that AM Best categorizes as strongest, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management.
The ratings of BUPA Mexico also reflect its importance and integration as the Mexico subsidiary of BIC, which provides BIC with access to Latin America’s largest insurance market, and the operational and capital support from the ultimate parent organization, The British United Provident Association Limited (BUPA), a global health care company. The ratings also consider the parent’s creditworthiness and the access to BUPA’s well-established network and other resources, which enhance BIC’s competitive advantage. AM Best anticipates that the operational support and financial flexibility afforded by BUPA will continue. AM Best will continue to monitor BIC’s strategic fit within the parent organization.
The ratings also take into account BUPA Mexico’s favorable financial flexibility, provided by its ultimate parent and leveraged by the group’s risk-adjusted capitalization at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). BUPA Mexico’s solid reinsurance program placed with BIC and experienced management team also support the ratings. Offsetting these positive rating factors is the subsidiary’s marginal operating performance, which exhibits volatility and makes the company dependent on capital injections from its group parent to support growth and maintain adequate capital under regulatory requirements.
The subsidiary offers the same array of products as its Latin America-based affiliates, and adheres to BIC’s underwriting, risk management and investment policies. BUPA Mexico’s successful expansion into Mexico’s insurance market leverages the group’s global brand, reinsurance capacity and capital support provided from BIC.
BIC continues to provide capital support to BUPA Mexico, which along with the group’s consolidated risk-adjusted capitalization fosters underwriting growth and provides financial flexibility. Given the subsidiary’s 10% retention of premium, the main component of required capital is derived from reinsurance recoverables. AM Best does not view this as a major concern, considering that 100% of BUPA Mexico’s reinsurance program is placed with BIC, which provides an adequate level of security through a quota share contract under which the subsidiary cedes 90% of its premiums to BIC, further complemented by an excess of loss agreement that protects BUPA Mexico’s risk retention.
BUPA Mexico’s business volume has outpaced the market for the past five years, presenting a compound average growth rate of 26%. However, an offsetting rating factor is the small size of the subsidiary, reflected in the small market share within the major medical expenses for individual segment, which results in volatile operating performance, making it more dependent on capital support from its parent. As of June 2020, BUPA Mexico presented a positive bottom-line result of MXN 72.6 million, which was mainly a result of a decrease in claims, as well as a transition to an internal service team, which includes areas of customer service and a core business system. The company foresees this as significantly reducing operating expenses in the medium term.
If positive rating actions are taken on BIC, the ratings of BUPA Mexico will move in tandem. Likewise, if there are negative rating actions taken on its immediate parent as a result of a decline in risk-adjusted capitalization, a downgrade in country risk tier in its core business markets or if strategic alignment or operational support with the ultimate parent, BUPA, were to decline materially, the ratings of BUPA Mexico will mirror those actions.
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:
- Evaluating Country Risk (Version Oct. 13, 2017)
- Understanding Universal BCAR (Version June 11, 2020)
- Available Capital & Holding Company Analysis (Version Oct. 13, 2017)
- Understanding BCAR for U.S. and Canadian Life/Health Insurers (Version May 28, 2020)
- AM Best’s Ratings On a National Scale (Version Oct. 13, 2017)
- Scoring and Assessing Innovation (Version March 5, 2020)
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 Guide to Best’s Credit Ratings.
- Previous Rating Date: Sept. 19, 2019
- Date Range of Financial Data Used: Dec. 31, 2013-June 30, 2020
This press release relates to rating(s) that have been published on AM 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 AM Best’s Recent Rating Activity web page.
AM Best does not validate or certify the information provided by the client in order to issue a credit rating.
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AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.