MEXICO CITY--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating (FSR) of A+ (Superior), the Long-Term Issuer Credit Rating (Long-Term ICR) of “aa-” and the Mexico National Scale Rating of “aaa.MX” of XL Seguros México, S.A. de C.V. (XLSM) (Mexico). The outlook of these Credit Ratings (ratings) is stable.
XLSM is a member of XL Bermuda Ltd (XL), which on a consolidated basis, has a balance sheet strength that AM Best categorizes as very strong, as well as its adequate operating performance, favorable business profile and appropriate enterprise risk management (ERM).
The rating reflect XL’s strategic importance to and alignment with AXA S.A. (AXA or AXA group) in enhancing the AXA group’s position in the global commercial property/casualty (P&C) insurance sector, with XL receiving rating enhancement as a result. XL is considered well-integrated within the AXA group, and AM Best expects that prompt and sufficient operational and financial support will be made available from the AXA group to XL should it be required.
XLSM began operations in 2004 as a subsidiary of XL Swiss Holdings Ltd, which holds a 99.99% stake and is owned by XL Group Ltd (or AXA XL). XLSM provides domestic and multinational companies, as along with its network partners across Latin America and the Caribbean, risk engineering and customized insurance solutions from its Mexico City and Monterrey offices.
XLSM benefits from being integrated into the XL group, gaining operational leverage through the same practices and procedures, reinsurance, underwriting selection and ERM practices. XLSM serves as an underwriting channel for the group, ceding 99.9% of written premiums to its British affiliate, XL Insurance Company SE. This enables XLSM to reduce its underwriting and leverage risk. However, given the nature of its operation, XLSM is susceptible to credit risk due to the high amount of reinsurance recoverables. AM Best believes this is not a major concern given that these exposures are within the group.
Since 2015, the company has been able to produce positive bottom-line results due to efficiencies in operating and administrative expenses, and has experienced sizeable growth since 2016.
XL historically has demonstrated its support for XLSM by providing capital contributions during the past five years. The last capital contribution took place in 2015, which was equivalent to 18% of XLSM’s 2014 reported surplus. This, in addition to good profitability indicators for year-end 2017 and 2018, resulted in solid risk-adjusted capital, as measured by Best’s Capital Adequacy Ratio (BCAR).
If negative rating actions are taken on the main operating subsidiaries of XL, as a result of a material deterioration in the risk-adjusted capitalization, performance or financial leverage at the holding company, or as a result of a weakening of the strategic importance of AXA XL to its ultimate parent, AXA, the global scale ratings of XLSM will move in tandem. Positive or negative rating action is also subject to rating actions taken on the ultimate parent company and lead rating unit, AXA.
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