Best’s News & Research Service - December 14, 2022 02:59 PM (EST)
AM Best Affirms Credit Ratings of El Aguila, Compañía de Seguros, S.A. de C.V.
- December 14, 2022 02:59 PM (EST)
Mexico City //BestWire// - AM Best has affirmed the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “a-” (Excellent) of El Aguila, Compañía de Seguros, S.A. de C.V. (El Aguila) (Mexico City, Mexico). The outlook of these Credit Ratings (ratings) is positive. Concurrently, AM Best has affirmed the Mexico National Scale Rating of “aaa.MX” (Exceptional) of El Aguila. The outlook of this rating is stable.
The ratings reflect El Aguila’s balance sheet strength, which AM Best assesses as strong, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management.
The positive outlooks reflect AM Best’s expectation of El Aguila’s ability to keep building capital based on profitable underwriting and net results.
The ratings also reflect El Aguila’s support from its parent company, Great American Insurance Company, which currently has an FSR of A+ (Superior) and a Long-Term ICR of “aa-” (Superior), each with a stable outlook, and continued improvements in El Aguila’s underwriting quality as of 2021. Offsetting these positive rating factors is the company’s relatively small size.
El Aguila was established in Mexico in 1994 and is a wholly owned subsidiary of Great American Insurance Company. Since 2016, El Aguila has diversified into other property/casualty (P/C) lines besides the motor business, targeting small- and medium-size enterprises in the commercial segment through an independent network of local distribution partners. Given its small size, the company shows a greater geographic concentration than its peers, making it more vulnerable to soft market conditions in its main regional markets within Mexico. The company focuses on having higher renewal rates than those registered by its main peers, by making heavy investments in advertising and direct sales channels, in comparison with traditional distribution in Mexico’s auto insurance segment that is typically done through agents, car agencies and bancassurance alliances.
The company’s portfolio grew by 12% in 2021, which was in line with its expectations and represented a positive performance. However, the company generated higher loss ratios in 2022, which are being addressed through rate adjustments. The company’s profitability indicators historically have remained below the auto segment’s average, mainly as a result of higher acquisition expenses derived from its focus on developing its direct sales force. Nevertheless, 2021 results continued to build up capital in conjunction with a no dividend policy. AM Best will continue to monitor accumulated results and its impact on the capital base.
El Aguila’s risk-adjusted capitalization is very strong, as measured by Best’s Capital Adequacy Ratio (BCAR), with underwriting risk standing as the main component for required capital. The company has benefited historically from its parent company’s capital contributions in support of its growth and strategy. The last contribution took place in 2017 and totaled MXN 57.6 million, strengthening the company’s risk-adjusted capitalization.
Positive rating actions could occur if El Aguila maintains improvements in underwriting results and risk-adjusted capitalization. Negative rating actions could occur if the company’s capital base and risk-adjusted capitalization deteriorate to levels that no longer support the ratings, resulting from the materialization of implementation risk or limitations in its business profile. A change in AM Best’s perception regarding the actual or perceived level of El Aguila’s strategic importance to the Great American Insurance Company group also could impact the company’s ratings.
The methodology used in determining these ratings is Best’s Credit Rating Methodology (Version Nov. 13, 2020), 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 & Holding Company Analysis (Version Oct. 13, 2017)
- Catastrophe Analysis in AM Best Ratings (Version Oct. 13, 2017)
- Evaluating Country Risk (Version Oct. 13, 2017)
- Scoring and Assessing Innovation (Version March 5, 2020)
- Understanding Global BCAR (Version June 30, 2022)
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: Dec. 1, 2021.
- Date Range of Financial Data Used: Dec. 31, 2016-Sept. 30, 2022
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.
While the information obtained from the material source(s) is believed to be reliable, its accuracy is not guaranteed. AM Best does not audit the company’s financial records or statements, or otherwise independently verify the accuracy and reliability of the information; therefore, AM Best cannot attest as to the accuracy of the information provided.
AM Best’s credit ratings are independent and objective opinions, not statements of fact. AM 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. AM 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.
AM Best receives compensation for interactive rating services provided to organizations that it rates. AM Best may also receive compensation from rated entities for non-rating related services or products offered by AM Best. AM Best does not offer consulting or advisory services. For more information regarding AM Best’s rating process, including handling of confidential (non-public) information, independence, and avoidance of conflicts of interest, please read the AM Best Code of Conduct. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
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 London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.