MEXICO CITY--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of A (Excellent), the Long-Term Issuer Credit Rating of “a” (Excellent) and the Mexico National Scale Rating of “aaa.MX” (Exceptional) of Tokio Marine HCC Mexico Compañía Afianzadora, S.A. de C.V. (TMHCC Mexico) (Mexico City, Mexico). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect TMHCC Mexico’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The ratings also reflect TMHCC Mexico’s affiliation with its parent company, Houston Casualty Company (HC), in terms of reinsurance protection, ERM and capital commitments. Limiting the ratings is the inherent risk of a startup company implementing its business plan, and the volatility of Mexico’s economy.
TMHCC Mexico is the Mexico-based surety subsidiary of HC; the company received regulatory approval for operations in April 2019 and issued its first policy in July 2019. HC and TMHCC Mexico also have a sister company, Tokio Marine Compañía de Seguros, S.A. de C.V. (TMX), which is domiciled in Mexico. TMHCC Mexico takes advantage of TMX’s corporate structure, which provides additional support to the operation.
The company plans to develop its presence in Mexico through a predominant mix of construction and commercial administrative surety, strongly backed by a comprehensive reinsurance program largely placed with its parent company.
TMHCC Mexico’s very strong balance sheet strength assessment is derived from its strongest risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). To achieve its business targets, the company has been capitalized with 81.8 million pesos (USD 4.3 million) as of July 2019, and might be subject to more capital contributions as the operation evolves.
The adequate assessment of TMHCC Mexico’s operating performance reflects the successful track record of its seasoned management and underwriting team, and the operational leverage the company gains from being integrated into the Tokio Marine Group. However, due to the startup nature of the company, business plan implementation has to evolve for AM Best to evaluate the company’s operating performance adequately.
As of year-end 2020, gross written premium stood at 210 million pesos, more than doubling the originally projected business volume, and, as expected from a startup company, technical income and year-end results were negative. Despite the significant variation in business volume, the company reports strict compliance with underwriting discipline and with its business model, coupled with several large policies.
As of June 2021, TMHCC Mexico posted positive bottom-line results, as a result of a business volume adequate to cover for the company’s fixed expenses.
Positive rating actions could take place if the company is able to achieve its commercial goals while posting strong operating performance and maintaining its risk-adjusted capitalization at strongest, as measured by BCAR. Negative rating actions could take place if the company experiences a deterioration in its risk-adjusted capitalization, as a result of weak operating performance or capital outflows, or if AM Best determines that the strategic importance of the Mexico subsidiary to the Tokio Marine Group has decreased.
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