A.M. Best Assigns Ratings to El Águila, Compañía de Seguros, S.A. de C.V.

MEXICO CITY--(BUSINESS WIRE)-- A.M. Best has assigned a financial strength rating of A- (Excellent), an issuer credit rating of “a-” and a Mexico National Scale Rating of “aa.MX” to El Águila, Compañía de Seguros, S.A. de C.V. (El Aguila) (Mexico City, Mexico). The outlook assigned to all ratings is stable.

The ratings reflect El Aguila's support from its parent company, Great American Insurance Company, which currently has an FSR of A+ (Superior) and an ICR of “aa-”, its strengthened capital base and improvements in its underwriting quality. Offsetting these positive rating factors are the company’s low levels of profitability and investment yield when compared with the average indicators in the Mexican auto insurance industry, and its relatively small size.

El Aguila was established in Mexico in 1994 and is a wholly owned subsidiary of Great American Insurance Company. El Aguila exclusively underwrites auto insurance, ranking 17th in the Mexican auto segment. The company has historically benefited from capital contributions from its parent company in order to support its growth and strategy. The most recent contribution came in June 2015, which represented 88.2% of reported 2014 year-end capital.

Historically, El Aguila has struggled to report premium sufficiency given its high expense ratio, which is a consequence of maintaining a direct sales distribution and infrastructure in tandem with large marketing efforts. The Mexican auto segment is typically distributed through agents, car agencies and more recently through bancassurance alliances. Claims indicators reported by the company are in line with its peers in the market and its loss ratio has diminished in the last five years, reaching 56% at the end of third-quarter 2015, a reflection of the efforts made by its management to improve its underwriting performance.

El Aguila’s capitalization is strong with underwriting risk standing as the main component for required capital, according to Best’s Capital Adequacy Ratio (BCAR). Support from El Aguila’s parent company has been reflected in capital injections whenever required to back-up its growth and improve its operations. Since its creation, El Aguila has received capital contributions from its parent, with the most recent injection received in June 2015 for MXN103 million, considerably strengthening the risk-adjusted capitalization of the company.

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. On the other hand, this strategy has resulted in higher renewal rates than those registered by its main peers, and has partially mitigated pressure in underwriting derived from the highly competitive environment in the Mexican auto insurance industry. Given its small size, the company shows higher geographic concentration than that of its peers, making it more vulnerable to soft market conditions in its main regional markets within Mexico. The investment portfolio of the company provides a financial yield below that of the property/casualty market in Mexico, and this further limits its profitability as it provides little buffer for deviations in technical results.

Positive rating actions could occur if El Aguila materially improves its underwriting results and the performance of its investment portfolio, while maintaining risk-adjusted capital at a level that support the current ratings. Negative rating actions could occur if the capital base of the company is eroded by extreme growth in premiums or deteriorating underwriting results, affecting risk-adjusted capitalization to levels that no longer support the 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
• Catastrophe Analysis in A.M. Best Ratings
• Evaluating Country Risk
• Insurance Holding Company and Debt Ratings
• Rating Members of Insurance Groups
• Risk Management and the Rating Process for Insurance Companies
• Understanding Universal BCAR

View a general description of the policies and procedures used to determine credit ratings. Also in accordance with Mexican regulations, the following is a link to required disclosures – A.M. Best America Latina Supplementary Disclosure.

• Previous Rating Date: Not rated.
• Date of Financial Data Used: Sept. 30, 2015

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 visit A.M. Best’s Ratings & Criteria Center.

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.

A.M. Best receives compensation for interactive rating services provided to organizations that it rates. A.M. Best may also receive compensation from rated entities for non-rating related services or products offered by A.M. Best. A.M. Best does not offer consulting or advisory services. For more information regarding A.M. Best’s rating process, including handling of confidential (non-public) information, independence, and avoidance of conflicts of interest, please read the A.M. Best Code of Conduct.

A.M. Best - Europe Rating Services Limited (AMBERS), a subsidiary of A.M. Best Company, is an External Credit Assessment Institution (ECAI) in the European Union (EU). Therefore, credit ratings issued by AMBERS may be used for regulatory purposes in the EU as per Directive 2006/48/EC.

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A.M. Best

Elí Sánchez, +(52) 55-1102-2720, ext. 108

Financial Analyst

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or

Alfonso Novelo, +(52) 55-1102-2720, ext. 107

Director, Analytics

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Christopher Sharkey, 908-439-2200, ext. 5159

Manager, Public Relations

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Jim Peavy, 908-439-2200, ext. 5644

Assistant Vice President, Public Relations

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Source: A.M. Best