A.M. Best Upgrades Credit Ratings of MAPFRE Fianzas, S.A.

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

The rating upgrades reflect the financial strength of MAPFRE Fianzas, the support received from MAPFRE S.A., MAPFRE Fianzas’ role as a complementary business line of MAPFRE Tepeyac, S.A. (MAPFRE Tepeyac), and in turn, the importance of MAPFRE Tepeyac as a subsidiary of MAPFRE S.A. The ratings also reflect MAPFRE Fianzas’ improved risk-adjusted capitalization, improved profitability as of September 2016 and solid reinsurance program. Partially offsetting these positive factors are the company’s operational performance in relation to the market, its exposure to contingent claims and its premium leverage.

MAPFRE Fianzas is the 10th largest insurer in Mexico’s surety industry based on gross premium written. The company’s portfolio is composed of 91% administrative, 5% judicial, 3% fidelity and 1% credit. MAPFRE Fianzas’ corporate practices are in line with MAPFRE Tepeyac and MAPFRE S.A.

Although MAPFRE Tepeyac stands on a legal basis as a subsidiary of MAPFRE S.A., its strategy and operations are directed as a boutique-business line focused on maintaining market presence and complimenting the services provided by its immediate parent.

MAPFRE Fianzas’ risk-adjusted capitalization improved in 2015 due to its retention of profits and moderate premium growth during the year; however, it remains exposed to important business risk derived from contingent claims that represented 38% of its reported surplus compared with the industry norm of approximately 15%. This exposure could lead to unexpected impacts in profitability and deterioration of its capital base. Such scenarios have been incorporated into the rating and present a key point to review in years to follow.

For 2015, the company presented a 3.7% growth rate, in line with that of the industry and maintained a similar operating performance to 2014. As of September 2016, the company’s bottom line results have improved, more than in previous years due to lower administrative costs and better investment income, resulting in 33.8% return on premium, its highest level in the past five years.

The company’s relative low premium volume makes it more vulnerable to adverse market conditions and claims deviations, which limits A.M. Best’s view of the ratings. A good reinsurance program provided by its affiliates, MAPFRE RE, Compañía de Reaseguros, S.A. and MAPFRE GLOBAL RISKS, Compañía Internacional de Seguros y Reaseguros S.A., in the form of proportional and facultative programs, partially mitigates these exposures. The company’s gross premium leverage stands at 1.51 times, well above the industry standing of 1.02.

Positive rating actions could occur if MAPFRE Fianzas continues to improve its underwriting quality, resulting in larger premium sufficiency, while at the same time continuing to achieve its growth targets in conjunction with consistent risk-adjusted capitalization measures. Positive rating actions on its ultimate parent, MAPFRE S.A., could also result in positive rating actions on MAPFRE Fianzas. Negative rating actions could occur if MAPFRE Fianzas’ profitability is affected by material contingent claims or a higher cost structure that erodes its level of risk-adjusted capitalization to a level that no longer supports the current ratings. In addition, negative rating actions on its ultimate parent could result in a downward movement of MAPFRE Fianzas’ 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)
• Rating Surety Companies (Version Aug. 13, 2014)
• Evaluating Country Risk (Version May 2, 2012)
• Insurance Holding Company and Debt Ratings (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 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: Oct. 7, 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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A.M. Best

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Source: A.M. Best