A.M. Best Affirms Credit Ratings of XL Seguros Mexico, S.A. de C.V.

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 XL Seguros Mexico, S.A. de C.V. (XLSM) (Mexico). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect XLSM’s regional importance to XL Group Ltd (XL), strong financial strength supported by its reinsurance program, adequate capital position and financial support of its parent, which are part of the benefits of being part of the XL group. Partially offsetting these positive rating factors are the dependence on revenues from its reinsurer and its exposure to adverse credit events.

XLSM is an operating entity of XL, a leading provider of global insurance and reinsurance coverages to industrial, commercial and professional service firms, insurance companies and other enterprises on a worldwide basis (see related press release). As of June 2017, XL had gross written premiums of USD 8.3 billion and assets of USD 62.4 billion.

XLSM was constituted and began operations in 2004 as a subsidiary of XL Swiss Holdings Ltd, which holds a 99.99% stake and is owned by XL. Through its Mexico City and Monterrey offices, XLSM provides local and multinational companies, as well as its network partners across Latin America and the Caribbean, with risk engineering and customized insurance solutions.

XLSM benefits from being integrated into the XL group, gaining operational leverage through the same practices and procedures, reinsurance, underwriting selection and enterprise risk management practices. XLSM serves as an underwriting channel for the group, ceding 99.9% of written premiums to its British affiliate, XL Insurance Company SE. This enables the company to reduce its underwriting and leverage risk. However, given the nature of its operation, XLSM is susceptible to credit risk due to the high amount of reinsurance recoverables, which A.M. Best believes should not be a major concern given that these exposures are within the group.

Historically, XLSM has produced marginal losses; however, since 2015, the company has been able to produce positive bottom-line results due to efficiencies in operating and administrative expenses, and the sizeable growth the company achieved during 2016.

XL historically has demonstrated its support for XLSM by providing capital contributions during the past five years. The last capital contribution took place in 2015, which was equivalent to 18% of XLSM’s 2014 reported surplus. This, in addition to good profitability indicators for year-end 2015 and 2016, resulted in solid risk-adjusted capital, as measured by Best’s Capital Adequacy Ratio (BCAR). During 2017, A.M. Best expects XLSM to have a more stable operating performance considering the company’s growth targets.

If there are positive rating actions taken on the main operating subsidiaries of XL as a result of the continuation of the sound and streamlined integration process, moderate debt and leverage measures and solid operating results coupled with strong risk-adjusted capitalization, the global scale ratings of XLSM will move in tandem. Likewise, if there are negative rating actions taken on XL as a result of negative operating performance trends accompanied by a significant reduction in risk-adjusted capitalization, the ratings of the Mexico subsidiary will mirror the same adjustments. Additionally, negative rating movements might occur if A.M. Best’s view of XLSM’s strategic importance to the XL group weakens.

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)
• Analyzing Insurance Holding Company Liquidity (Version March 25, 2013)
• Catastrophe Analysis in A.M. Best Ratings (Version Nov. 3, 2011)
• Evaluating Country Risk (Version May 2, 2012)
• Insurance Holding Company and Debt Ratings (Version May 6, 2014)
• 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 May 1, 2017)

The following applied criteria supplemented the analysis of the ultimate rating unit:

• Understanding BCAR for U.S. Property/Casualty Insurers (Version April 24, 2017)

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: Aug. 3, 2016
• Date of Financial Data Used: June 30, 2017

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.

A.M. Best’s credit ratings are independent and objective opinions, not statements of fact. A.M. 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. A.M. 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.

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A.M. Best

Olga Rubo

Associate Financial Analyst

+52 55-1102-2720, ext. 134

olga.rubo@ambest.com

or

Alfonso Novelo

Senior Director, Analytics

+52 55-1102-2720, ext. 107

alfonso.novelo@ambest.com

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Christopher Sharkey

Manager, Public Relations

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christopher.sharkey@ambest.com

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Jim Peavy

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Source: A.M. Best