AM Best Affirms Credit Ratings of CESCE México, S.A. de C.V. and CESCE Fianzas México, S.A. de C.V.

Business Wire

MEXICO CITY--(BUSINESS WIRE)-- AM Best has affirmed the Financial Strength Rating (FSR) of B++ (Good), the Long-Term Issuer Credit Rating (Long-Term ICR) of “bbb” and the Mexico National Scale Rating (NSR) of “aa.MX” of CESCE México, S.A. de C.V. (CESCEM). At the same time, AM Best has affirmed the FSR of B++ (Good), the Long-Term ICR of “bbb+” and the Mexico NSR of “aa+.MX” of CESCE Fianzas México, S.A. de C.V. (CESCEF). The outlook of these Credit Ratings (ratings) is stable. Both companies are domiciled in Mexico City, Mexico.

The ratings of CESCEM reflect the company’s balance sheet strength, which AM Best categorizes as very strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management (ERM).

The ratings of CESCEF reflect the company’s balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate ERM.

The ratings of CESCEM and CESCEF also reflect their affiliation with Compañía Española de Seguros de Crédito a la Exportación (CESCE), excellent risk-adjusted capitalization and well-structured reinsurance program. Partially offsetting these positive rating factors are CESCEM’s negative bottom line results and the intense competition in Mexico’s credit insurance segment. In the case of CESCEF, the previously mentioned positive rating factors are offset partially by the company’s relatively short track record of operations and the intense competition in Mexico’s surety segment.

CESCEM is 51% owned by CESCE’s subsidiary, Consorcio Internacional de Aseguradores de Credito (CIAC), and 49% owned by Banco Nacional de Comercio Exterior, a Mexican development bank. CESCEM specializes exclusively in credit insurance. As of September 2018, the company ranked fourth in Mexico’s credit insurance segment.

CESCEF began operations in 2011 and is wholly owned by CIAC. CESCEF, which underwrites mainly administrative surety, ranked 13th among the 16 companies in Mexico’s surety segment (as of September 2018), with a market share of less than 1%.

CESCEM and CESCEF leverage their operations through the underwriting and business expertise of their parent company, CESCE, adhering to its policies and procedures, as well as receiving reinsurance support from CESCE and its affiliates, which is supportive of the financial strength of its Mexican subsidiaries. Additionally, CESCE historically has maintained well-capitalized operations in both companies.

Both companies are capitalized strongly, as ERM practices are well-established and limit risk exposures substantially through a conservative underwriting and investment policy, comprehensive reinsurance program mainly placed with its parent and affiliates, and the remainder within counterparties with a good security level.

CESCEM has sustained this capitalization level despite posting negative results during the past years, with 2017 generating the largest expected losses during a five-year period due to a combination of high claims and non-recurring events. CESCEM’s ratings recognize its lack of success in meeting its profitability targets, in addition to a highly concentrated and competitive market, although the company surpassed its business budget in 2018, which could contribute to improve its performance in the medium term.

For CESCEF, strong capitalization levels have been sustained through capital injections in 2012 and 2013, despite posting negative results during its first three years of operation. The company has been posting positive bottom line results since 2014 as a result of an adequate premium volume, low loss ratio, and strong underwriting practices. AM Best expects this trend to continue in 2019, if the new government’s spending in infrastructure does not affect negatively the growth of the surety sector during the following years.

Negative rating actions will occur if AM Best’s views on parental support or strategic importance to its group for both subsidiaries deteriorate.

Positive rating factors that could result in an upgrade of CESCEM’s ratings include substantial improvement in its profitability measures as a result of higher efficiency, improvements in underwriting, and the successful strategy implementation for healthier premium growth, in line with strong capitalization levels. Additional factors that could result in a downgrade of CESCEM’s ratings include the continued deterioration of operating performance, or if the company fails to meet its commercial or underwriting quality targets to levels that affect its capital base and render its risk-adjusted capitalization to levels that do not support the current ratings.

Positive factors that could lead to an upgrade of CESCEF’s ratings are maintaining positive operating performance while maintaining strong capitalization levels. An additional negative rating factor that could result in a downgrade of CESCEF’s ratings is negative operating performance that significantly erodes its capital base to levels that are no longer supportive of the current ratings.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all 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 AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.

AM Best is a global rating agency and information provider with a unique focus on the insurance industry. Visit www.ambest.com for more information.