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Rating Action:

Moody's affirms Chubb Fianzas Monterrey Aseguradora de Caución’s Baa1 and Aa1.mx IFS ratings with stable outlook

 The document has been translated in other languages

17 December 2019

Mexico , December 17, 2019 - Moody's de Mexico has affirmed the Baa1 global local currency and Aa1.mx national scale insurance financial strength (IFS) ratings of Chubb Fianzas Monterrey, Aseguradora de Caución, S.A. (Chubb Fianzas Monterrey). The outlook remains stable.

RATINGS RATIONALE

According to Moody's, Chubb Fianzas Monterrey rating affirmation considers the company's leading position in the Mexican surety industry, its good asset quality, its low operating leverage, and its historically sound profitability. Also, we recognize the resilience shown by the company under the current challenging environment of the surety industry, which has been affected by the low government spending in infrastructure. Chubb Fianzas Monterrey's credit profile benefits from a combination of implicit and explicit support from its parent company in the form of brand sharing, reinsurance protection, as well as the parent's expertise, experience and oversight over its local operations, all of which result in a one-notch uplift from the company's stand-alone credit profile (Baa2), to a Baa1 IFS rating.

Chubb Fianzas Monterrey's fundamental credit strengths are tempered by its limited business diversification, which exposes the company's earnings to business cycles, by its high concentration of investments in Mexican sovereign bonds (A3, negative), and by the highly competitive surety industry in Mexico, which strains the company's profit margins. The company's high product concentration in "administrative bonds" required for infrastructure projects is counterbalanced by its long experience and knowledge of the business, as well as by its recognized name in the market.

Factors that could result in an upgrade of Chubb Fianzas Monterrey's ratings are the following: 1) improvement in the company's business diversification, considering the recent changes in Mexico's legal framework for credit insurers and surety companies; 2) additional parental support resulting from its affiliation with Chubb Limited (NYSE: CB) and Chubb Tempest Reinsurance Ltd. (IFS Aa3, positive); 3) an upgrade in Mexico's sovereign credit rating and an improvement in its insurance operating environment. Conversely, factors that could lead to a rating downgrade include the following: 1) Reduced level of support from the parent company and its affiliates; 2) sustained deterioration in the company's market share - e.g. below 15% in the surety sector; 3) weakening of underwriting performance for example, a combined ratio above 90% on a sustained basis; 4) weakening of gross underwriting leverage to 3x or greater and; 5) a downgrade of Mexico's sovereign credit rating or a severe deterioration in the country's operating environment.

Chubb Fianzas Monterrey, Aseguradora de Caución S.A. reported gross premiums of MXN1,130 million and a net income of MXN152 million as of June 2019. The company reported total assets of MXN5,196 million and shareholders' equity of MXN1,610 million.

The principal methodology used in these ratings was Property and Casualty Insurers published in May 2018. Please see the Rating Methodologies page on www.moodys.com.mx for a copy of this methodology.

The period of time covered in the financial information used to determine Chubb Fianzas Monterrey Aseguradora de Caución S.A. ratings is between 01 January 2014 and 31 December 2018 (source: companies' audited financial statements).

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.

REGULATORY DISCLOSURES

Information sources used to prepare the rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's information.

The ratings have been disclosed to the rated entity prior to public dissemination.

A general listing of the sources of information used in the rating process, and the structure and voting process for the rating committees responsible for the assignment and monitoring of ratings can be found in the Disclosure tab in www.moodys.com.mx.

The date of the last Credit Rating Action was 06/06/2019.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.mx.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

This credit rating is subject to upgrade or downgrade based on future changes in the financial condition of the Issuer/Security, and said modifications will be made without Moody's de México S.A. de C.V accepting any liability as a result.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on www.moodys.com.mx for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com.mx for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see our website www.moodys.com.mx for further information.

Please see www.moodys.com.mx for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

The ratings issued by Moody's de Mexico are opinions regarding the credit quality of securities and/or their issuers and not a recommendation to invest in any such security and/or issuer.

Please see the ratings tab on the issuer/entity page on www.moodys.com.mx for additional regulatory disclosures for each credit rating.

Francisco Uriostegui
Analyst
Financial Institutions Group
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
JOURNALISTS : 1 888 779 5833
Client Service : 1 212 553 1653

Marc R. Pinto, CFA
MD-Financial Institutions
Financial Institutions Group
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Releasing Office :
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
JOURNALISTS : 1 888 779 5833
Client Service : 1 212 553 1653

© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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