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FOR IMMEDIATE RELEASE
MEXICO CITY - OCTOBER 27, 2022 01:28 PM (EDT)
AM Best has affirmed the Financial Strength Rating of A (Excellent), the Long-Term Issuer Credit Rating of “a” (Excellent) and the Mexico National Scale Rating of “aaa.MX” (Exceptional) of Tokio Marine HCC Mexico Compañía Afianzadora, S.A. de C.V. (TMHCC Mexico) (Mexico City, Mexico). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect TMHCC Mexico’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The ratings also reflect TMHCC Mexico’s affiliation with its parent company, Houston Casualty Company (HC), in terms of reinsurance protection, ERM and capital commitments. Limiting the ratings is the inherent risk of a company of recent creation implementing its business plan, and the volatility of Mexico’s economy.
TMHCC Mexico is the Mexico-based surety subsidiary of HC; the company received regulatory approval for operations in April 2019 and issued its first policy in July 2019. HC and TMHCC Mexico also have a sister company, Tokio Marine Compañía de Seguros, S.A. de C.V. (TMX), which is domiciled in Mexico. TMHCC Mexico takes advantage of TMX’s corporate structure, which provides additional support to the operation.
The company is developing its presence in Mexico through a predominant mix of construction and commercial administrative surety, strongly backed by a comprehensive reinsurance program largely placed with its parent company.
TMHCC Mexico’s very strong balance sheet strength assessment is derived from its strongest risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). To achieve its business targets, the company has been capitalized with MXN 81.8 million (USD 4.3 million) as of July 2019 and might require more capital contributions as the operation evolves.
The adequate assessment of TMHCC Mexico’s operating performance reflects the successful track record of its seasoned management and underwriting team, and the operational leverage the company gains from being integrated into the Tokio Marine Group. However, due to the company’s short history of operation, business plan implementation has to evolve for AM Best to evaluate the company’s operating performance adequately.
As of year-end 2021, gross written premium stood at MXN 357 million, continuing the trend of surpassing the originally projected business volume, and presenting a positive bottom-line result of MXN 9.8 million. Despite the significant variation in business volume, the company reports strict compliance with underwriting discipline and with its business model, coupled with several large policies.
As of June 2022, TMHCC Mexico posted negative bottom-line results, mainly due to an adjustment to the ceded commission rate, which is still above market levels. The company’s loss ratio stood at 3.6%, consistent with 2021.
Positive rating actions are not expected in the medium term. Negative rating actions could take place if the company experiences a deterioration in its risk-adjusted capitalization from weak operating performance or capital outflows, or if AM Best determines that the strategic importance of the Mexico subsidiary to the Tokio Marine group has decreased.
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:
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.
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