AM Best Downgrades Credit Ratings of CRABI, S.A. de C.V.; Places Ratings Under Review With Negative Implications

Business Wire

MEXICO CITY--(BUSINESS WIRE)-- AM Best has downgraded the Financial Strength Rating (FSR) to C+ (Marginal) from B (Fair), the Long-Term Issuer Credit Rating (Long-Term ICR) to “b-” (Marginal) from “bb+” (Fair) and the Mexico National Scale Rating to “bb.MX” (Fair) from “a+.MX” (Excellent) of CRABI, S.A. de C.V. (Crabi) (Mexico City, Mexico). In addition, AM Best has placed these Credit Ratings (ratings) under review with negative implications.

The ratings reflect Crabi’s balance sheet strength, which AM Best assesses as weak, as well as its marginal operating performance, limited business profile and marginal enterprise risk management.

These rating actions reflect the deterioration of Crabi’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), significant deviations in its operating performance metrics with respect to the company’s original business plan, and a shortfall in the minimum paid capital regulatory requirement. These events also call into question the soundness and fundamentals of Crabi’s enterprise risk management program.

The under review with negative implications status indicates further pressure on the ratings and the heightened execution risk of the company’s business plan considering the uncertainty of future capital contributions to support the company’s operation and the ability to comply with regulatory capital requirements.

Crabi is a startup company in Mexico that is authorized to underwrite property/casualty insurance in the auto line of business, beginning operations in May 2019. It is 99.9% owned by CRABI, Inc., whose sole purpose is to be an investment vehicle for Crabi, with the remainder owned by the company’s CEO, Javier Orozco.

As of December 2020, Crabi had the strongest level risk-adjusted capitalization as measured by BCAR; however, its risk-adjusted capitalization as of June 2021 had been pressured downward to a very weak level due to a delay in the expected capital infusion, coupled with the shortfall in the regulatory minimum paid capital.

As of June 2021, Crabi’s operating performance metrics stood below the projected levels due to a higher-than-projected level of claims and acquisition costs. The company is addressing these issues, but the implementation of these adjustments remains a challenge within a very competitive auto segment. Additional negative development of operating performance trends would erode the already pressured capital base further.

Positive rating actions are not expected in the medium term. Negative rating actions could take place if Crabi fails to correct the current shortfall in regulatory capital requirements, which will be closely monitored by AM Best in the short term.

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 Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.