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Rating Action:

Moody’s affirms the ratings of five Mexican insurers, outlooks revised to stable following sovereign downgrade

12 July 2022


New York , July 12, 2022 – Moody's Investors Service ("Moody's") affirmed the insurance financial strength (IFS) ratings of Coface Seguro de Credito Mexico, S.A. de C.V. (Coface Mexico), Chubb Fianzas Monterrey, Aseguradora de Caucion S.A. (Chubb Fianzas Monterrey), Aseguradora Insurgentes, S.A. de C.V., Grupo Financiero Aserta (Aseguradora Insurgentes), Aseguradora Aserta, S.A. de C.V., Grupo Financiero Aserta (Aseguradora Aserta), and Prudential Seguros Mexico, S.A. de C.V. (Prudential Seguros Mexico).

While the outlook for Prudential Seguros Mexico was maintained at stable, the outlooks for the other four insurers and the reinsurer included in this rating actions were changed to stable from negative.


The following five insurers' IFS ratings were affirmed:

Issuer: Coface Seguro de Credito Mexico, S.A. de C.V.

…Insurance Financial Strength Rating, Affirmed Baa1;

Issuer: Chubb Fianzas Monterrey, Aseguradora de Caucion S.A.

…Insurance Financial Strength Rating, Affirmed Baa1;

Issuer: Aseguradora Insurgentes, S.A. de C.V., Grupo Financiero Aserta

…Insurance Financial Strength Rating, Affirmed Baa2;

Issuer: Aseguradora Aserta, S.A. de C.V., Grupo Financiero Aserta

…Insurance Financial Strength Rating, Affirmed Baa2;

Issuer: Prudential Seguros Mexico, S.A. de C.V.

…Insurance Financial Strength Rating, Affirmed Baa2;

Outlook Actions:

Issuer: Coface Seguro de Credito Mexico, S.A. de C.V.

…Outlook, Changed to Stable from Negative;

Issuer: Chubb Fianzas Monterrey, Aseguradora de Caucion S.A.

…Outlook, Changed to Stable from Negative;

Issuer: Aseguradora Insurgentes, S.A. de C.V., Grupo Financiero Aserta

…Outlook, Changed to Stable from Negative;

Issuer: Aseguradora Aserta, S.A. de C.V., Grupo Financiero Aserta

…Outlook, Changed to Stable from Negative;

Issuer: Prudential Seguros Mexico, S.A. de C.V.

…Outlook, Remains Stable;

RATINGS RATIONALE

This rating action follows the downgrade of the sovereign bond rating to Baa2 from Baa1, which was announced on 8 July 2022 (https://ratings.moodys.com/ratings-news/390563 ). The rating action on the Mexican government's rating was driven by economic and fiscal trends that Moody's expects will continue to gradually – but persistently – undermine Mexico's overall credit profile, aligning it with that of Baa2-rated peers. Moody's considers that economic activity will remain constrained by weak investment prospects and increased structural rigidities such that the economic scarring that took place during pandemic will not be reversed and, consequently, GDP levels will remain below the pre-pandemic trend during the rest of this administration.

The stable outlook reflects Moody's expectations that, in the absence of unanticipated shocks, Mexico's credit profile will remain aligned with that observed in Baa2-rated sovereigns throughout the end of the current administration in spite of rising economic and fiscal pressures. The stable outlook incorporates our expectation of policy continuity as we anticipate the authorities will remain committed to macroeconomic stability during the rest of this administration.

AFFIRMATION OF COFACE MEXICO, CHUBB FIANZAS MONTERREY, ASEGURADORA INSURGENTES, ASEGURADORA ASERTA'S RATINGS, OUTLOOK CHANGED TO STABLE FROM NEGATIVE

Moody's has affirmed the ratings and changed the outlook to stable from negative for four Mexican insurers, in line with the rating agency's action on the Government of Mexico's bond rating and the expectation that insurers' financial fundamentals will remain sound over the next 12 to 18 months. The actions are supported by the insurers' strict underwriting standards and their relatively strong liquidity positions , given good premium revenue streams and the relative lack of credit-sensitivity related to insurance premiums. The insurers also benefit from good profitability and from internal capital generation derived from insurance underwriting, in addition to investment activities. These considerations broadly support rating stability for the sector. The rating agency said that the four insures are all comfortably positioned at their current level.

In the case of Chubb Fianzas Monterrey and Coface Mexico, their ratings remain one notch above the sovereign incorporating the support from their global parent companies CHUBB INA Holdings Inc. (Chubb, A3 stable) and Compagnie Française d'Assurance pour le Comm. (COFACE, A2 stable) respectively. The support includes a shared brand, controls, as well as strategic and financial oversight. The change in outlook to stable from negative also reflects the stable outlook on Chubb's and COFACE's ratings.

Moody's also said that the stable outlook for these four entities reflect the close linkages between their credit profiles and that of the Government of Mexico, primarily considering their direct and indirect exposures to sovereign assets as well as other investments and their financial flexibility that are correlated to the sovereign securities in their portfolio.

AFFIRMATION OF PRUDENTIAL SEGUROS MEXICO'S RATINGS WITH A STABLE OUTLOOK

Moody's said that the affirmation of Prudential Seguros Mexico's ratings with a stable outlook reflects the company' relatively low product risk and the good credit quality of its investment portfolio. The rating action also considers the life insurer's conservative expansion in the domestic life insurance market, which in turn translates in more solid profit generation while maintaining its conservative underwriting, and its adequate capital adequacy metrics, as measured by its shareholders' equity-to-total assets ratio and regulatory solvency ratio.

At the same time, Prudential Seguros Mexico's ratings benefit from its ownership by and support from Prudential Financial, Inc. (Prudential, A3 stable). The company is also an affiliate of Prudential Insurance Company of America (Aa3 stable), which provides reinsurance support. An important component in Prudential Seguros Mexico's credit profile and ratings is the combination of implicit and explicit support from its parent company in the form of a shared brand, continued capital contributions to support business growth, strategic and financial oversight, and controls. In consideration of the above factors, we incorporate a two-notch uplift to the company's Ba1 stand-alone credit profile, resulting in Prudential Seguros Mexico's rating of Baa2. The stable outlook on Prudential Seguros Mexico also reflects the stable outlook on Prudential.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

COFACE MEXICO, CHUBB FIANZAS MONTERREY, ASEGURADORA INSURGENTES, ASEGURADORA ASERTA

A significant deterioration in the economic conditions that have so far supported solid fundamentals in the insurance system could negatively affect the financial strength of these Mexican insurers. Among the factors that could lead to a rating downgrade for the four insurers with stable outlooks are: 1) a downgrade of the Mexican sovereign bond rating, 2) significant deterioration in the country's operating and economic environment, and 3) deterioration in the companies' asset quality, profitability, or its capital adequacy.

That said, factors that could lead to an upgrade include: 1) an upgrade of Mexico's sovereign rating, 2) improved capital adequacy and profitability metrics for the insurers, and 3) substantial and consistent improvement in companies' business profile and international sources of revenues, or 4) a higher assessment of parental support to the Mexican operations of the foreign-owned insurers.

PRUDENTIAL SEGUROS MEXICO

Prudential Seguros Mexico's rating could be upgraded if its posts: 1) a sustained improvement in profitability; 2) a sustained increase in market share; 3) or a higher assessment of parental support from Prudential.

Conversely, downward pressure could arise if there is: 1) a severe weakening of capitalization metrics; 2) a significant decline in Prudential Seguros Mexico's investment portfolio quality (for example, an allocation of over 20% of its portfolio to high-risk assets); 3) a downgrade of its parent's rating or a reduction in the parental support; or 4) a multi-notch downgrade of Mexico's sovereign rating or deterioration of the country's insurance operating environment.

The principal methodology used in rating Aseguradora Aserta, S.A. de C.V., Grupo Financiero Aserta, Aseguradora Insurgentes, S.A. de C.V., Grupo Financiero Aserta and Chubb Fianzas Monterrey, Aseguradora de Caucion, S.A. was Property and Casualty Insurers Methodology published in September 2021 and available at https://ratings.moodys.com/api/rmc-documents/74858. The principal methodology used in rating Coface Seguro De Credito Mexico, S.A. de C.V. was Trade Credit Insurers Methodology published in November 2019 and available at https://ratings.moodys.com/api/rmc-documents/69014. The principal methodology used in rating Prudential Seguros Mexico, S.A. de C.V. was Life Insurers Methodology published in September 2021 and available at https://ratings.moodys.com/api/rmc-documents/74857 . Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions .

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 provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.

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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235 .

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

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

Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Rodrigo Marimon Bernales
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 Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

© 2022 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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