A.M. Best Affirms Credit Ratings of MAPFRE Tepeyac, S.A.

MEXICO CITY--(BUSINESS WIRE)-- A.M. Best has affirmed the Financial Strength Rating of A (Excellent), the Long-Term Issuer Credit Rating of “a” and the Mexico National Scale Rating of “aaa.MX” of MAPFRE Tepeyac, S.A. (MAPFRE Tepeyac) (Mexico City, Mexico). The outlook of these Credit Ratings (ratings) remains stable.

The ratings reflect MAPFRE Tepeyac’s solid risk-adjusted capitalization, its competitive position in Mexico’s insurance industry and adequate enterprise risk management practices. MAPFRE Tepeyac operates as a composite insurer of life and non-life business and ranks among Mexico’s five largest insurers based on written premium.

The ratings also recognize MAPFRE Tepeyac’s affiliation with its immediate parent, MAPFRE America, S.A., as well as the synergies and operating efficiencies the company enjoys as a group member of MAPFRE S.A., the leading insurer in Spain. Offsetting these positive rating factors is the deterioration in MAPFRE Tepeyac’s operating performance during 2015 and 2016, derived from its previous strategy to expand its market share.

The company’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio, remains strong and supportive of the current ratings. Mexico’s newly adopted regulatory capital requirements might leave room for capital outflows to the parent given lower capital requirements on fronting transactions, such as the policy for PEMEX, a state-owned oil and gas producer that is Mexico’s largest company. When accounting for these possible capital outflows, A.M. Best’s view is that the company’s capital adequacy remains supportive of the current ratings.

MAPFRE Tepeyac’s written premiums grew 64.2% during 2015, mainly driven by underwriting PEMEX’s biannual property-liabilities policy, which took place in June 2015 for a premium of USD 423.6 million (accounted on its totality during 2015). To support this growth, MAPFRE S.A. contributed USD 91 million to MAPFRE Tepeyac, increasing its reported surplus by 66% compared with year-end 2014. When discounting the effects of the PEMEX policy, the company presented an above average industry growth of 13.4%, and improved its market position to 5th, compared with ranking 10th in 2014.

In 2015, MAPFRE Tepeyac presented negative net income for the first time in the past five years, driven by higher claims and management expenses, with limited investment products, in addition to non-recurrent tax charges. During 2016, the company implemented a cost reduction strategy, together with more selective underwriting practices. As of September 2016, the effectiveness of these measures has not been reflected in the company’s operating performance; however, A.M. Best will continue to follow the impact of these efforts on the company’s underwriting and profitability metrics.

Enterprise risk management practices are well-established and implemented throughout the company and closely follow those set by MAPFRE S.A. This integration has benefited the company in the adopting Mexico’s new Solvency II type regulations.

A.M. Best considers MAPFRE Tepeyac to be well-positioned for its current rating level. However, in the long term, positive rating drivers include the success of the company in achieving positive bottom line results driven by quality underwriting and expense controls while maintaining strong capitalization levels, as well as positive rating actions on its ultimate parent, MAPFRE S.A. Factors that may lead to negative rating actions include significant and sustained deterioration of its underwriting quality in subsequent years, significantly weakening its capitalization. In addition, negative rating actions for its ultimate parent would result in a downward movement of MAPFRE Tepeyac’s ratings.

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. 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:

• A.M. Best’s Ratings on a National Scale (Version Sept. 5, 2014)
• Catastrophe Analysis in A.M. Best Ratings (Version Nov. 3, 2011)
• Evaluating Country Risk (Version May 2, 2012)
• Rating Members of Insurance Groups (Version Dec. 15, 2014)
• Risk Management and the Rating Process for Insurance Companies (Version April 2, 2013)
• Understanding Universal BCAR (Version April 28, 2016)

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: Sep. 24, 2015.
• Date of Financial Data Used: Sep. 30, 2016.

This press release relates to rating(s) that have been published on A.M. 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 A.M. Best’s Recent Rating Activity web page.

A.M. 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. A.M. Best does not audit the company’s financial records or statements, or otherwise independently verify the accuracy and reliability of the information; therefore, A.M. Best cannot attest as to the accuracy of the information provided.

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Source: A.M. Best