AM Best Affirms Credit Ratings of HDI Global Seguros, S.A.
AM Best has affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term Issuer Credit Rating (Long-Term ICR) of "aa-" (Superior) of HDI Global Seguros, S.A. (HDI-GS) (Mexico). Concurrently, AM Best has affirmed the Mexico National Scale Rating of "aaa.MX" (Exceptional) of HDI-GS. The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect HDI-GS' balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management.
The ratings also reflect HDI-GS' substantial reinsurance support from its group through HDI Global Network AG, which currently has an FSR of A+ (Superior) and a Long-Term ICR of "aa-" (Superior). Additionally, the ratings factor in HDI-GS' integration within its ultimate parent company, HDI Haftpflichtverband der Deutschen Industrie V.a.G. (HDI V.a.G.), in terms of the business model and consistent financial support.
The stable outlooks on HDI-GS' ratings reflect AM Best's expectation that HDI V.a.G.'s risk-adjusted capitalization will remain at the strongest level, as measured by Best's Capital Adequacy Ratio, supported by conservative capital management and prudent risk controls. The group's asset-liability and liquidity management capabilities are expected to help it to withstand current external headwinds associated with financial market volatility and uncertain macroeconomic prospects. The group's performance is expected to remain strong, supported by further improvement in the profitability of its primary segment.
HDI-GS is a subsidiary of HDI Global Insurance Company (99.9%) and HDI Global Network AG (0.1%), which are both subsidiaries of HDI V.a.G. HDI-GS' business portfolio is composed of fire, liability, marine and engineering risks. HDI-GS' business model utilizes a very low premium retention level, standing at 0.17% at year-end 2022, which is supported completely by an automatic facultative reinsurance agreement provided by its affiliate and minority shareholder, HDI Global Network AG.
HDI-GS' risk-adjusted capitalization stands at the strongest level, as measured by BCAR, with growth in capital and surplus during the past seven years mainly driven by consistent positive bottom-line results. Given the company's ceding profile, credit risk continues to be the main driver for required capital; however, AM Best does not view this as a major concern given the counterparty's excellent level of security and the binding characteristics of the contract toward HDI-GS' obligations. Support from the group in the past has come through capital injections, with the last one in 2015, aimed to support growth and maintain adequate reserves and capital sufficiency.
Reinsurance commissions continue to impact acquisition costs positively, given that HDI-GS' extensive reinsurance program is placed with its affiliate, HDI Global Network AG, and continues to be a mainstay for profitability. As of September 2023, HDI-GS has been able to maintain a stable cash flow and propel premium growth, despite the challenges posed by the current economic environment. The company has been able to sustain profitability though underwriting while taking advantage of investment income without being overly reliant on it.
Positive rating pressure on HDI V.a.G.'s rating may arise from sustained improvements in the group's balance sheet strength fundamentals due to its prudent risk culture and underpinned by strong and stable operating performance across business segments, causing HDI-GS' ratings to move in tandem. Likewise, if there are negative rating actions on HDI V.a.G, as a result of a material weakening in the group's consolidated risk-adjusted capitalisation, HDI-GS' ratings would also move in tandem. This could occur due to significant deterioration in operating performance below the level required for the strong assessment level, due to factors such as unexpectedly high losses or marked deterioration in underwriting risk controls, resulting in a sustained decline in technical results or material asset impairments, as well as a result of a weakening of the group's prudent risk culture.
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.
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