Best’s News & Research Service - March 31, 2015 04:07 PM (EDT)
A.M. Best Affirms Ratings of Quálitas Compañia de Seguros S.A.B. de C.V.
- March 31, 2015 04:07 PM (EDT)
Mexico City //BestWire// - A.M. Best has affirmed the financial strength rating of B (Fair) and the issuer credit rating (ICR) of "bb" of Quálitas Compañia de Seguros S.A.B. de C.V. (Qualitas) (Mexico). The outlook for all ratings is stable.
The ratings on Qualitas reflect its consistent elevated underwriting leverage, weak risk-adjusted capitalization measured by Best's Capital Adequacy Ratio (BCAR) and dependence on financial income in order to counterweight underwriting losses. Partially offsetting these weaknesses are Qualitas' leading market position in Mexico's increasingly competitive automobile insurance segment, its outstanding distribution network and solid overall profitability.
Historically, the company has operated with underwriting leverage considered higher than expected for an automobile insurance provider. At the end of 2014, the company's underwriting leverage, as measured by the ratio of net premiums written to surplus, remains elevated at 4.5 times. Additionally, Qualitas maintains combined ratios close to breakeven due to its high level of loss and loss adjustment expenses recorded each year.
Qualitas operates through a network of local agents, financial institutions and service offices and has established a formidable distribution capability throughout Mexico. This has enabled the company to maintain its leading market position in Mexico's automobile insurance segment amid extremely challenging economic and market conditions. Qualitas' profitability has been pressured over the past two years, given the highly competitive environment in its niche and lower financial products derived from the global low interest rate environment, but still compares well among its peers, standing at a 19.6% return on equity in 2014. The company is adjusting its underwriting practices in order to improve its bottom line results.
Key rating drivers that could lead to positive rating actions for Qualitas include continued favorable trends in revenues and earnings, capital growth and improvement in the underwriting leverage. Key factors that could lead to negative rating actions include unfavorable operating performance or weakened risk-adjusted capital.
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:
- Catastrophe Analysis in A.M. Best Ratings
- Evaluating Country Risk
- 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.
o Previous Rating Date: Feb. 21, 2014
o Date of Financial Data Used: Dec. 31, 2014
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