Best’s Briefing: Cancellation of Mexico City Airport Project Triggers Negative Signal for the Peso and Markets

While a decision to cancel the completion of a multi-billion government airport project in Mexico City has placed pressure on the peso exchange rate and the equity and fixed-income markets, it will not have a material impact on A.M. Bests assessment of the countrys risk level.

Mexico President-Elect Andrs Manuel L³pez Obrador announced the cancellation of the estimated USD 13 billion project on Oct. 30, a step that has also increased pressure on the countrys sovereign ratings. In a new special report, A.M. Best notes that it currently classifies Mexico as a Country Risk Tier 3 country, demonstrating a low level of economic risk and a moderate level of political and financial system risk.

According to the Bests Briefing, titled, Cancellation of Mexico City Airport Project – Negative Signal for the Peso and Markets, there may be added uncertainty in Mexicos important surety segment in the event of similar developments in other projects. Mexicos insurance industry depends highly on the liquidity of sovereign bonds to match its liabilitiesgovernment-related securities as described by the regulator CNSF (Comisi³n Nacional de Seguros y Fianzas)which constituted around 64.6% of the insurance industrys investment portfolio as of June 2018. With potentially difficult times ahead for Mexicos macroeconomy, the countrys interest rates could rise to match rate hikes in the United States.

Additionally, an increased perception of risk in Mexico could also drive the Interbank Equilibrium Interest Rate (TIIE) higher, diminishing the value of the bondsdeterioration that would be reflected in the surplus or results of the countrys insurance companies, depending on their liquidity needs.

 Stay Updated To Save Money & Time. Join Our Free Newsletter 
. Indepth Analysis & Opinion       . Interviews      . Exclusive Reports  
. Free Digital Magazines      News & updates      . Event Invitations 
                     
& Much More Delivered To Your Inbox For Free.
Submit
We Will Not Spam, Rent, or Sell Your Information.
All emails include an unsubscribe link. You may opt-out at any time. See our privacy policy.

 

A.M. Best will closely monitor the impact of rising interest rates on the valuations of companies investment portfolios, but given the industrys adequate capitalization and good liquidity, rating changes seem unlikely over the short term.

To access the full copy of this Bests Briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=279928.

A.M. Best is a global rating agency and information provider with a unique focus on the insurance industry. Visit www.ambest.com for more information.

Copyright 2018 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

A.M. Best
Eli Sanchez, +11 55 1102 2720
Senior
Financial Analyst

[email protected]
or
Meg
Mulry, +1 908 439 2200, ext. 5446

Associate Director,
Economic
Research and Analytics

[email protected]
or
Christopher
Sharkey, +1 908 439 2200, ext. 5159

Manager, Public Relations
[email protected]
or
Jim
Peavy, +1 908 439 2200, ext. 5644

Director, Public Relations
[email protected]

 Stay Updated To Save Money & Time. Join Our Free Newsletter 
. Indepth Analysis & Opinion       . Interviews      . Exclusive Reports  
. Free Digital Magazines      News & updates      . Event Invitations 
                     
& Much More Delivered To Your Inbox For Free.
Submit
We Will Not Spam, Rent, or Sell Your Information.
All emails include an unsubscribe link. You may opt-out at any time. See our privacy policy.

 
Close
Stay Updated To Save Money & Time. Join Our Free Newsletter. 
. Indepth Analysis & Opinion       Interviews          . Exclusive Reports 
. Free Digital Magazines        . News & updates        . Event Invitations
& Much More Delivered To Your Inbox For Free. 
Submit
We Will Not Spam, Rent, or Sell Your Information.
All emails include an unsubscribe link. You may opt-out at any time. See our privacy policy.
 
Close