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FOR IMMEDIATE RELEASE
MEXICO CITY - NOVEMBER 17, 2017 01:43 PM (EST)
A.M. Best has affirmed the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “a-” of Grupo Nacional Provincial, S.A.B. (GNP) (Mexico City, Mexico). The outlook of these Credit Ratings (ratings) remains positive. Concurrently, A.M. Best has affirmed the Mexico National Scale Rating (NSR) of “aaa.MX” of GNP. The outlook of this rating remains stable.
The rating affirmations reflect GNP’s improved risk-adjusted capitalization derived from regulatory changes, as well as its leading position in Mexico’s insurance market, strong enterprise risk management practices, profitable results and well-structured reinsurance program. Limiting the ratings is the volatility that the equity surplus may experience as a result of regulatory changes, and the elevated underwriting leverage to stockholders’ equity.
GNP is the largest domestic capital insurer within Mexico, based on premiums. The company operates as a composite insurer of life and non-life business; core business segments include life, health and automobile coverage.
GNP’s balance sheet is strong, given its good risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), which at year-end 2016 benefited from additional equity surplus due to changes in statutory accounting; however, dividend payments driven by the company’s targets on capital efficiency have partially restricted A.M. Best’s view of GNP’s BCAR. The positive outlook on the FSR and Long-Term ICR reflects the expected improvement of its risk-adjusted capitalization, although there is still some degree of uncertainty over the sensitivity level of its equity surplus toward changes in interest rates. The additional equity surplus is a consequence of the implementation of accounting registers based on market value approximations of assets and liabilities. GNP follows conservative practices in terms of its asset-liability management. In addition, the company’s balance sheet strength is reinforced by its good reinsurance program placed with highly rated counterparties, which adequately protects the company’s risk retention. The effectiveness of these practices was demonstrated by the lack of any material impact on the capital position of the company due to the earthquakes that took place in September 2017 in Central Mexico.
During 2016, GNP’s growth outpaced the market while the company maintained a profitable business based on its core segments. The company adjusted its underwriting policies, resulting in better operating performance metrics in comparison with the previous year; however, its net result is still boosted from the reserves releases derived from the adoption of Solvency II-type standards that took place in 2016 and that A.M. Best expects will remain until year-end 2017 at a lower scale than in the previous year. As of August 2017, the company continued to post adequate underwriting results, investment yield and profitability.
Positive rating actions could take place if the company is able to increase its current level of risk-adjusted capitalization in the short term while improving its bottom-line results and profitability indicators to levels more in line with highly rated peers. Negative rating actions could take place if the company erodes its additional equity with a sustained negative operating performance, or if the amount of dividends paid negatively impacts risk-adjusted capitalization to a level that is no longer supportive of the current rating levels.
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:
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.
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