Best’s News & Research Service - December 15, 2022 11:26 AM (EST)
AM Best Upgrades Credit Ratings of HDI Global Seguros, S.A.; Revises Outlooks to Stable
- December 15, 2022 11:26 AM (EST)
Mexico City //BestWire// - AM Best has upgraded the Financial Strength Rating (FSR) to A+ (Superior) from A (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “aa-” (Superior) from “a+” (Excellent) of HDI Global Seguros, S.A. (HDI-GS) (Mexico). The outlook of these Credit Ratings (ratings) has been revised to stable from positive. Concurrently, AM Best has affirmed the Mexico National Scale Rating of “aaa.MX” (Exceptional) of HDI-GS. The outlook of this rating is stable.
The ratings reflect HDI-GS’ balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management.
The ratings also reflect HDI-GS’ substantial reinsurance support from its group through HDI Global Network AG, which currently has an FSR of A+ (Superior) and a Long-Term ICR of “aa-” (Superior). Additionally, the ratings factor in HDI-GS’ integration within its ultimate parent company, HDI Haftpflichtverband der Deutschen Industrie V.a.G. (HDI V.a.G.), in terms of the business model and consistent financial support.
The stable outlooks on HDI-GS’ ratings reflect AM Best’s expectation that HDI V.a.G.’s prudent risk controls and strong operating performance, supported by improved profitability of its primary business segment, will continue to enhance the resilience of its balance sheet. The group’s asset-liability and liquidity management capabilities are expected to help it withstand current external headwinds associated with financial market volatility and uncertain macroeconomic prospects.
HDI-GS 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. HDI-GS’ business portfolio is composed of fire, liability, marine and engineering risks. HDI-GS’ business model utilizes a very low premium retention level, standing at 0.09% at year-end 2021, which is supported completely by an automatic facultative reinsurance agreement provided by its affiliate and minority shareholder, HDI Global Network AG.
HDI-GS’ risk-adjusted capitalization stands at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), with growth in capital and surplus during the past six years mainly driven by consistent positive bottom-line results. Given the company’s ceding profile, credit risk continues to be the main driver for required capital; however, AM 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-GS’ obligations. Support from the group in the past has come through capital injections, with the last one in 2015, aimed to support growth and maintain adequate reserves and capital sufficiency.
Reinsurance commissions continue to impact acquisition costs positively, given that HDI-GS’ extensive reinsurance program is placed with its affiliate, HDI Global Network AG, and continues to be a mainstay for profitability. As of July 2022, HDI-GS has been able to maintain a stable cash flow and propel premium growth, despite the challenges posed by the current economic environment. The company has been able to sustain profitability though underwriting while taking advantage of investment income without being overly reliant on it.
If there are positive rating actions on the performance of HDI V.a.G, HDI-GS’ ratings would move in tandem. Likewise, if there are negative rating actions on HDI V.a.G, as a result of a material weakening in the group’s consolidated risk-adjusted capitalisation, HDI-GS’ ratings would also move in tandem. This could occur due to significant deterioration in operating performance below the level required for the strong assessment, due to factors such as unexpectedly high losses or marked deterioration in underwriting risk controls, resulting in a sustained decline in technical results or material asset impairments, as well as a result of a weakening of the group’s prudent risk culture.
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:
- Understanding Global BCAR (June 30, 2022)
- Catastrophe Analysis in A.M. Best Ratings (Oct. 13, 2017)
- Available Capital & Holding Company Analysis (Oct. 13, 2017)
- A.M. Best’s Ratings On a National Scale (Oct. 13, 2017)
- Scoring and Assessing Innovation (March 05, 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: Nov. 12, 2021
- Date Range of Financial Data Used: December 31, 2017-July 31, 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.
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