AM Best has affirmed the Mexico National Scale Rating (NSR) of aa-.MX and the Long-Term Issuer Credit Rating (Long-Term ICR) of bbb- of Grupo Financiero Aserta, S.A. de C.V. (GFA). Concurrently, AM Best has affirmed the Mexico NSR of aaa.MX, the Financial Strength Rating of A- (Excellent) and the Long-Term ICR of a- of Aseguradora Insurgentes, S.A. de C.V. (AISA) and its sister company, Aseguradora Aserta, S.A. de C.V. (Aserta), which are the main subsidiaries of GFA. The outlook of these Credit Ratings (ratings) remains stable. All companies are domiciled in Mexico City, Mexico.
The ratings reflect AISAs and Asertas balance sheet strength, which AM Best categorizes as very strong, as well as their strong operating performance, neutral business profile and appropriate enterprise risk management (ERM).
In January 2017, AISA and Aserta were authorized to operate as insurances entities under a seguro de cauci³n (surety insurance) license, and changed their names from Afianzadora Insurgentes, S.A. de C.V. and Afianzadora Aserta, S.A. de C.V., respectively. In July 2018, the companies received approval to underwrite as surety insurers; the three allowed lines approved for this license are surety, surety insurance and credit insurance.
The ratings reflect the groups leading position in Mexicos surety market, historically good consolidated operating performance throughout the market cycle and its seasoned management team. The ratings also recognize the companies affiliation as larger members of GFA, the largest surety group in Mexico with a 28.4% market share as of September 2018, according to the Mexican Association of Guarantee Institutions (AMIG).
The groups positive rating factors are derived from its surety insurance companies strong surplus positions given their strong capital bases and sound underwriting practices in conjunction with solid reinsurance programs placed among highly rated reinsurance counterparties. AISA and Aserta have maintained positive bottom-line results despite the slow dynamics of Mexicos surety industry during the past years, and into 2018.
In 2017, the surety market decreased 1% in real terms due to less public spending on infrastructure projects and an economic environment for investments that has remained slow. These conditions have limited overall growth; however, GFAs surety companies grew 3.3% while improving their operating performance. The companies continue to report positive bottom-line results and adequate profitability metrics in comparison with other companies in Mexicos surety market. As of September 2018, the market grew 4.8% on a year-over-year basis. At the same time, GFA has taken measures to face any potential adverse market conditions and has worked to further diversify its revenue by increasing its international presence and strengthening its corporate strategy to take advantage of the new surety insurance opportunities (seguro de cauci³n). AM Best expects AISA and Aserta to maintain their strong market share and meet expansion targets while maintaining supportive capital levels.
GFA is well-protected by its reinsurance program and its contingency reserves. Its appropriate ERM framework has allowed the company to manage its exposures effectively and make an efficient use of its capital to improve its solvency.
Positive rating actions could take place for AISA and Aserta if the companies successfully implement a geographic diversification strategy while consistently maintaining good profitability through adequate underwriting and risk-adjusted capitalization that supports the ratings. Factors that could lead to negative rating actions are shortfalls in the companys projected performance in terms of profitability and capital generation. Furthermore, negative rating actions also could result from adverse scenarios in the surety market that translate into material deterioration of the companys capital to levels that AM Best considers non-supportive of the current ratings.
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