AM Best Affirms Credit Ratings of El Aguila, Compañía de Seguros, S.A. de C.V.

AM Best has affirmed the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “a-” (Excellent) of El Aguila, Compañía de Seguros, S.A. de C.V. (El Aguila) (Mexico City, Mexico). The outlook of these Credit Ratings (ratings) is positive. Concurrently, AM Best has affirmed the Mexico National Scale Rating of “aaa.MX” (Exceptional) of El Aguila. The outlook of this rating is stable.

The ratings reflect El Aguila’s balance sheet strength, which AM Best assesses as strong, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management.

The positive outlooks reflect AM Best’s expectation of El Aguila’s ability to keep building capital based on profitable underwriting and net results.

The ratings also reflect El Aguila’s support from its parent company, Great American Insurance Company, which currently has an FSR of A+ (Superior) and a Long-Term ICR of “aa-” (Superior), each with a stable outlook, and continued improvements in El Aguila’s underwriting quality as of 2021. Offsetting these positive rating factors is the company’s relatively small size.

El Aguila was established in Mexico in 1994 and is a wholly owned subsidiary of Great American Insurance Company. Since 2016, El Aguila has diversified into other property/casualty (P/C) lines besides the motor business, targeting small- and medium-size enterprises in the commercial segment through an independent network of local distribution partners. Given its small size, the company shows a greater geographic concentration than its peers, making it more vulnerable to soft market conditions in its main regional markets within Mexico. The company focuses on having higher renewal rates than those registered by its main peers, by making heavy investments in advertising and direct sales channels, in comparison with traditional distribution in Mexico’s auto insurance segment that is typically done through agents, car agencies and bancassurance alliances.

The company’s portfolio grew by 12% in 2021, which was in line with its expectations and represented a positive performance. However, the company generated higher loss ratios in 2022, which are being addressed through rate adjustments. The company’s profitability indicators historically have remained below the auto segment’s average, mainly as a result of higher acquisition expenses derived from its focus on developing its direct sales force. Nevertheless, 2021 results continued to build up capital in conjunction with a no dividend policy. AM Best will continue to monitor accumulated results and its impact on the capital base.

El Aguila’s risk-adjusted capitalization is very strong, as measured by Best’s Capital Adequacy Ratio (BCAR), with underwriting risk standing as the main component for required capital. The company has benefited historically from its parent company’s capital contributions in support of its growth and strategy. The last contribution took place in 2017 and totaled MXN 57.6 million, strengthening the company’s risk-adjusted capitalization.

Positive rating actions could occur if El Aguila maintains improvements in underwriting results and risk-adjusted capitalization. Negative rating actions could occur if the company’s capital base and risk-adjusted capitalization deteriorate to levels that no longer support the ratings, resulting from the materialization of implementation risk or limitations in its business profile. A change in AM Best’s perception regarding the actual or perceived level of El Aguila’s strategic importance to the Great American Insurance Company group also could impact the company’s ratings.

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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