AM Best, the global credit ratings agency, has revised the outlook to negative from stable and affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “a” (Excellent) of Tokio Marine HCC Mexico Compañía Afianzadora, S.A. de C.V. (TMHCC Mexico).
Concurrently, AM Best has affirmed the Mexico National Scale Rating (NSR) of “aaa.MX” (Exceptional) of TMHCC Mexico, with a stable outlook.
According to AM Best, this change reflects TMHCC Mexico’s very strong balance sheet strength, adequate operating performance, neutral business profile, and appropriate enterprise risk management (ERM).
As measured by Best’s Capital Adequacy Ratio (BCAR), TMHCC Mexico has the strongest level of risk-adjusted capitalisation.
To achieve its business targets, it was capitalised with MXN 81.8 million in July 2019 and MXN 30 million in November 2023.
AM Best believes that TMHCC Mexico will not be able to reverse the negative trend in operating performance, which drives the outlook revisions in FSR and Long-Term ICR, attributed to persisting competitive market conditions that have created heightened pressure over the firm’s business strategy execution, which could lead to a decline in the overall assessment of operating performance in the near term.
TMHCC Mexico’s affiliation with its parent company, Houston Casualty Company (HC) for reinsurance protection, ERM and capital commitments is also a factor in the change. So far, TMHCC Mexico has a successful track record with its seasoned management and underwriting team, and the operational leverage the company gains from being integrated into the Tokio Marine Group.
However, TMHCC Mexico’s results demonstrate an opportunity for underwriting improvements and put pressure on the company’s profitability. As of July 2024, the company’s operating performance metrics still face a downturn, contributing to a net loss of MXN 3.2 million.
AM Best also confirmed that limiting the ratings is the inherent risk of the company’s ongoing execution of its business plan, and the volatility of Mexico’s economy.
TMHCC Mexico is the Mexico-domiciled surety subsidiary of HC; the former 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) in Mexico. TMHCC Mexico takes advantage of TMX’s corporate structure, which provides additional operations support.
TMHCC Mexico is developing 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.
AM Best will continue to monitor the firm closely for any future change in ratings.
