AM Best has affirmed the Financial Strength Rating of A+ (Superior), the Long-Term Issuer Credit Rating of aa- and the Mexico National Scale Rating of aaa.MX of Berkley International Fianzas Mexico S.A. (BFM) (Mexico City, Mexico). The outlook of these Credit Ratings (ratings) is stable.
BFM is a member of W. R. Berkley Group (Berkley group), which on a consolidated basis, has a balance sheet strength that AM Best categorizes as strongest, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management (ERM).
The ratings reflect BFMs affiliation with its parent company, W. R. Berkley Corporation (W. R. Berkley), in terms of underwriting, reinsurance protection, ERM and capital commitments. Limiting the ratings is the inherent risk of a startup company implementing its business plan and the potential volatility of Mexicos economy during 2019.
BFM was formed in November 2016, and is the Mexico surety subsidiary of W. R. Berkley. The company received regulatory approval for operations in June 2017 and issued its first policy that same month. The company plans to develop a regional presence in northwest Mexico, through a predominant mix of administrative surety, and a lesser portion of credit and judicial products strongly backed up by a comprehensive reinsurance contract with its parent company.
BFMs solid risk-adjusted capitalization is derived from its strong capital position in support of its premium growth during its first years of operation, which is strengthened further by the comprehensive reinsurance contract with its parent company. Furthermore, AM Best recognizes W. R. Berkleys commitment to its subsidiaries providing additional capital fungibility to the Mexico operation.
As a company of new formation, BFM will have to produce sufficient volume to compensate for its fixed costs, while posting adequate underwriting performance on its retained premium. While the BFM management and underwriting team have a successful track record of their own, the business plan implementation has to evolve for AM Best to adequately evaluate the companys operating performance.
Although the company has an experienced team of underwriters, to reach an adequate premium volume might prove more challenging than expected, as the expectation of a more dynamic surety market is subject to uncertainty with regard to the new governments spending infrastructure, which could impact the growth of the surety sector during the following years and potentially limit the companys growth prospects.
If there are positive rating actions taken on the main operating subsidiaries of the Berkley group as a result of a substantial and sustained improvement in its operating performance metrics relative to its peers, BFMs ratings likely would move in tandem. Likewise, if there are negative rating actions taken on the Berkley group as a result of a sustained deterioration in the groups underwriting or operating results, driven by either current accident-year results or adverse development of prior years loss reserves, or as a result of a change in the financial position of the groups holding company that results in the withdrawal of capital from the group or which causes an increase in financial leverage and/or decline in interest coverage at the holding company that is not supportive of the current ratings, BFMs ratings would mirror those same actions.
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