Moody's said that the ratings' affirmation of 12 Mexican insurers, with stable outlooks, reflects that a potential downgrade of the Mexican sovereign rating would not exert significant downward pressure on the companies' credit profiles. While these insurers' direct and indirect exposure to the sovereign is relatively high, a potential downgrade on the Mexican sovereign would have a limited effect on their ratings because they are all positioned below the sovereign rating. Furthermore, Moody's notes that Mexican insurers' benefit from very modest reliance on debt funding and financing, and their liquidity positions are relatively strong, given good premium revenue streams and the relative lack of credit-sensitivity of insurance premiums. Insurers also benefit from their profitability and from the internal capital generation that derives from insurance underwriting, in addition to investment activities. These considerations broadly support rating stability of the sector.
The rating agency went on to say that the deterioration in Mexico's insurance operating environment has not created significant downward pressure on the insurers ratings because they are all comfortably positioned at their current level. That said, further deterioration in Mexico's insurance operating environment may result in rating downgrades because the country-specific trends and developments that it captures can over time have as much of a bearing on insurers' long-term credit profile and viability as the intrinsic strength of their own operations.
Moody's noted that unlike the rest of the Mexican rated insurers, Chubb Fianzas Monterrey intrinsic credit profile was negatively impacted by the deterioration in Mexico's operating environment, because its standalone fundamentals were less solidly positioned than those of its peers. That said, the company's IFS ratings remain unchanged, in recognition of a 1-notch rating uplift from its standalone credit profile, resulting from its affiliation with Chubb Limited (NYSE: CB) and Chubb Tempest Reinsurance Ltd. (IFS Aa3 positive), from which it receives support in the form of reinsurance protection, brand sharing, and oversight of the Mexican subsidiary.
The following 12 insurers' GSR and NSR IFS ratings were affirmed, and their outlooks remain stable:
- Aseguradora Aserta, S.A. de C.V., Grupo: Baa2/Aa2.mx
- Aseguradora Insurgentes, S.A. de C.V., Grupo: Baa2/Aa2.mx
- Aseguradora Patrimonial Daños, S.A.: Ba1/A1.mx
- Aserta Seguros Vida, S.A. de C.V.: Ba1/A1.mx
- Coface Seguro de Crédito México, S.A. de C.V.: Baa1/Aa1.mx
- Liberty Fianzas, S.A. de C.V.: Baa1/Aa1.mx
- Plan Seguro, S.A. de C.V., Co. de Seguros: Baa3/Aa3.mx
- Prudential Seguros México, S.A. de C.V.: Baa2/Aa2.mx
- Seguros Sura, S.A. de C.V.: Baa3/Aa3.mx
- Seguros Azteca Daños, S.A. de C.V.: Ba1/ A1.mx
- Seguros Azteca, S.A de C.V.: Ba1/A1.mx
- Chubb Fianzas Monterrey, Aseguradora de Caución S.A.: Baa1/Aa1.mx
In the case of MBIA México, Moody's said that the change in the Mexican sovereign outlook and the deterioration in its insurance operating environment does not exert any influence in the company's GLC rating, because it is well below the sovereign rating and insurance operating environment rating level. Moreover, MBIA Mexico's ratings and outlook remain closely linked to its parent, MBIA Insurance Corporation ("MBIA Corp", "Caa1 IFS, developing), given their close linkages, as reflected by brand sharing, reinsurance agreements, and through a net worth maintenance agreement from the parent.
The following insurer's IFS ratings were affirmed, with a developing outlook:
- MBIA México, S.A. de C.V: Caa1/B3.mx
Among the factors that could lead to a rating downgrade for the 12 insurers with stable outlooks are: 1) a multi-notch downgrade of the Mexican sovereign bond rating, 2) further deterioration in the country's operating environment, and 3) deterioration in companies' asset quality, profitability or its capital adequacy. Conversely, factors that could lead to an upgrade include 1) improved capital adequacy and profitability metrics for insurers, and 2) substantial and consistent improvement in companies' business profile.
In the case of MBIA Mexico, Moody's said that its ratings could be downgraded in case of 1) a downgrade of MBIA Corp. 's ratings, 2) a significant deterioration in MBIA Mexico's capital adequacy, and 3) fail to comply with minimum regulatory solvency margins. MBIA Mexico's ratings could be upgraded if MBIA Corp's ratings substantially improve.
The principal methodology used in rating, Aseguradora Aserta, S.A. de C.V., Aseguradora Insurgentes, S.A. de C.V., Aseguradora Patrimonial Danos, S.A., Chubb Fianzas Monterrey, Aseguradora de Caución S.A., Plan Seguro, S.A. de C.V., Co. de Seguros, Liberty Fianzas S.A. de C.V., Seguros Azteca Daños, S.A. de C.V., and Seguros Sura, S.A. de C.V. was Property and Casualty Insurers published in May 2018. The principal methodology used in rating Aserta Seguros Vida, S.A. de C.V., Prudential Seguros Mexico, S.A. de C.V., and Seguros Azteca, S.A de C.V. was Life Insurers published in May 2018. The principal methodology used in rating Coface Seguro de Credito Mexico, S.A. de C.V. was Trade Credit Insurers published in May 2018. The principal methodology used in rating MBIA Mexico, S.A. de C.V. was Financial Guarantors published in May 2018. Please see the Rating Methodologies page on www.moodys.com.mx for a copy of these methodologies.
The period of time covered in the financial information used to determine Aseguradora Aserta, S.A. de C.V., Aseguradora Insurgentes, S.A. de C.V., Aseguradora Patrimonial Danos, S.A., Chubb Fianzas Monterrey, Aseguradora de Caución S.A., Plan Seguro, S.A. de C.V., Co. de Seguros, Liberty Fianzas S.A. de C.V., Seguros Azteca Daños, S.A. de C.V., Seguros Sura, S.A. de C.V., Aserta Seguros Vida, S.A. de C.V., Prudential Seguros Mexico, S.A. de C.V., Seguros Azteca, S.A de C.V., Coface Seguro de Credito Mexico, S.A. de C.V., and MBIA Mexico, S.A. de C.V.'s rating is between December 2014 and December 2018 (source: CNSF and audited financial statements provided by the companies).
Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in May 2016 entitled "Mapping National Scale Ratings from Global Scale Ratings". While NSRs have no inherent absolute meaning in terms of default risk or expected loss, a historical probability of default consistent with a given NSR can be inferred from the GSR to which it maps back at that particular point in time. For information on the historical default rates associated with different global scale rating categories over different investment horizons, please see http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1174796 .