MEXICO CITY--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “aa-” (Superior) of HDI Global Seguros, S.A. (HDI-GS) (Mexico). Concurrently, AM Best has affirmed the Mexico National Scale Rating of “aaa.MX” (Exceptional) of HDI-GS. The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect HDI-GS’ balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management.
The ratings also reflect HDI-GS’ substantial reinsurance support from its group through HDI Global Network AG, which currently has an FSR of A+ (Superior) and a Long-Term ICR of “aa-” (Superior). Additionally, the ratings factor in HDI-GS’ integration within its ultimate parent company, HDI Haftpflichtverband der Deutschen Industrie V.a.G. (HDI V.a.G.), in terms of the business model and consistent financial support.
The stable outlook on HDI-GS’ ratings reflect AM Best’s expectation that HDI V.a.G.’s risk-adjusted capitalization will remain at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), supported by conservative capital management and prudent risk controls. The group’s asset-liability and liquidity management capabilities are expected to help it to withstand current external headwinds associated with financial market volatility and uncertain macroeconomic prospects. The group’s performance is expected to remain strong, supported by further improvement in the profitability of its primary property segment.
HDI-GS is a subsidiary of HDI Global Insurance Company (99.9%) and HDI Global Network AG (0.1%), which are both subsidiaries of HDI V.a.G. HDI-GS’ business portfolio is composed of fire, liability, marine and engineering risks. The company’s business model utilizes a very low premium retention level, standing at 0.1% at year-end 2023, which is supported completely by an automatic facultative reinsurance agreement provided by its affiliate and minority shareholder, HDI Global Network AG.
HDI-GS’ risk-adjusted capitalization stands at the strongest level, as measured by BCAR, with growth in capital and surplus mainly driven by consistent positive bottom-line results. Given the company’s ceding profile, credit risk continues to be the main driver for required capital; however, AM Best does not view this as a major concern given the counterparty’s excellent level of security and the binding characteristics of the contract toward HDI-GS’ obligations. Support from the group in the past has come through capital injections (the last one in 2015) aimed at supporting growth and maintaining adequate reserves and capital sufficiency.
Reinsurance commissions continue to impact acquisition costs positively given that HDI-GS’ has an extensive reinsurance program placed with its affiliate, HDI Global Network AG, which continues to be a mainstay source of profitability. As of September 2024, HDI-GS has been able to maintain a stable cash flow and premium growth despite the challenges posed by the current economic environment and recent natural disasters. The company has been able to sustain profitability though underwriting while taking advantage of investment income without being overly reliant on the latter.
Positive rating impact from HDI V.a.G.’s rating may arise from sustained improvements in the group’s balance sheet strength fundamentals due to its prudent risk culture and underpinned by strong and stable operating performance across business segments, causing HDI-GS’ rating to move in tandem. Conversely, if there are negative rating actions on HDI V.a.G. as a result of a material weakening in the group’s consolidated risk-adjusted capitalization, HDI-GS’ ratings would also move in tandem. This could occur due to significant deterioration in the operating performance below the level required for the strong assessment level, which may be a consequence of factors. These factors could involve unexpectedly high losses or a marked deterioration in underwriting risk controls, resulting in a sustained decline of technical results or material asset impairments, as well as a result of a weakening of the group’s prudent risk culture.
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