AM Best affirmed the Financial Strength Rating of B++
(Good), the Long-Term Issuer Credit Ratings of “bbb” (Good) and the
Mexico National Scale Rating of “aa.MX” (Superior) of CESCE México,
S.A. de C.V. (CESCEM) and its affiliate, CESCE Fianzas México, S.A.
de C.V. (CESCEF). The outlook of these Credit Ratings (ratings) is
stable. Both companies are domiciled in Mexico City, Mexico.
The ratings of CESCEM reflect the company’s balance sheet
strength, which AM Best assesses as very strong, as well as its
marginal operating performance, limited business profile and
appropriate enterprise risk management (ERM).
The ratings of CESCEF reflect the company’s balance sheet
strength, which AM Best assesses as very strong, as well as its
adequate operating performance, limited business profile and
appropriate ERM.
The ratings of CESCEM and CESCEF also reflect their affiliation
with Compañía Española de Seguros de Crédito a la Exportación, S.A.
Compañía de Seguros y Reaseguros (CESCE), excellent risk-adjusted
capitalization, as measured by Best’s Capital Adequacy Ratio
(BCAR), and well-structured reinsurance program. Partially
offsetting these positive rating factors for CESCEM and CESCEF are
the competitive market dynamics in Mexico’s credit insurance and
surety segments.
CESCEM is 51% owned by CESCE’s subsidiary, Consorcio
Internacional de Aseguradores de Credito, S.A. (CIAC), and 49%
owned by Banco Nacional de Comercio Exterior, a Mexico-based
development bank. CESCEM specializes exclusively in credit
insurance and ranks in the top five of Mexico’s credit insurance
segment.
CESCEF began operations in 2011 and is wholly owned by CIAC.
CESCEF currently has a small share of Mexico’s surety market. The
company’s business portfolio is concentrated almost completely in
administrative surety, which is consistent with the portfolios of
other market participants.
CESCEM and CESCEF leverage their operations through the
underwriting and business expertise of their parent company, CESCE,
adhering to its policies and procedures, as well as receiving
reinsurance support from CESCE and its affiliates, which is
supportive of the financial strength of its Mexico-based
subsidiaries.
AM Best considers the risk-adjusted capitalization of each
company to be at the strongest level, as measured by BCAR. The
companies’ ERM practices are well-established and limit risk
exposures substantially through a conservative underwriting and
investment policy, as well as a comprehensive reinsurance program
mainly placed with its parent and affiliates, with the remainder
placed with high-quality counterparties.
CESCEM’s ratings factor in the company’s historical
profitability targets, in addition to a highly concentrated and
competitive market. In 2022, CESCEM’s profitability of MXN 19
million resulted from contained claims, a constant inflow of
reinsurance commissions and improved investment income due to high
interest rates. In 2023, CESCEM’s net income result reached a
record value of MXN 25 million, driven by reinsurance commissions,
reserves release and record financial income. The company generated
a combined ratio of 59% compared with 85% in 2022.
CESCEF’s risk-adjusted capitalization remains at the strongest
level, as measured by BCAR, and has been sustained through capital
injections in the past few years. The company historically has
posted positive bottom-line results due to adequate premium volume,
low loss ratios and strong underwriting practices. However, a
capital injection in 2019 offset a net loss that was driven mainly
by a large claim. In 2023, CESCEF sustained profitable results due
to record investment results, reflecting a 1.6% return on equity.
AM Best expects the company’s operating expenses to improve
compared with historical trends. Surety companies continue to face
a challenging growth environment, given the low volume of public
works tenders. These factors, in conjunction with CESCEF’s small
market share, increase the vulnerability of the company’s business
model.
CESCEM’s stable outlooks reflect AM Best’s expectation that the
company will maintain its balance sheet strength assessment at the
very strong level as it continues with its prudent underwriting
practices. Positive rating actions could occur if the company
continues achieving a positive trend that denotes steady premium
sufficiency in the medium term.
Negative rating actions could also occur if CESCEM’s operating
performance deteriorates to a level that affects its capital
base.
CESCEF’s stable outlooks reflect AM Best's expectation that the
company will maintain its balance sheet strength assessment at the
very strong level, supported by risk-adjusted capitalization at
current levels as this economic cycle evolves. Positive rating
actions are not expected in the medium term, but could occur if
there is a constant strengthening of the company’s capital base,
while maintaining its current levels of risk-adjusted
capitalization.
Negative rating actions could occur if CESCEF’s bottom line
results erode either from high administrative expenses or lower
investment income.
This press release relates to Credit Ratings that have been
published on AM Best’s website. For all rating information relating
to the release and pertinent disclosures, including details of the
office responsible for issuing each of the individual ratings
referenced in this release, please see AM Best’s Recent
Rating Activity web page. For additional information
regarding the use and limitations of Credit Rating opinions,
please view Guide to Best’s Credit Ratings. For
information on the proper use of Best’s Credit Ratings, Best’s
Performance Assessments, Best’s Preliminary Credit Assessments and
AM Best press releases, please view Guide to Proper Use of
Best’s Ratings & Assessments.
AM Best is a global credit rating agency, news publisher and
data analytics provider specializing in the insurance industry.
Headquartered in the United States, the company does business in
over 100 countries with regional offices in London, Amsterdam,
Dubai, Hong Kong, Singapore and Mexico City. For more information,
visit www.ambest.com.
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Juan Pablo Castro Associate Financial Analyst
+52 55 1102 2720 ext. 133 juanpablo.castro@ambest.com
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908 882 2318 al.slavin@ambest.com