AM Best has revised the outlooks to stable from positive and 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). Concurrently, AM Best has affirmed the Mexico National Scale Rating of “aaa.MX” (Exceptional) of El Aguila with a stable outlook.

These Credit Ratings (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 outlook revision on the FSR and Long-Term ICR to stable from positive reflects AM Best’s expectation of El Aguila’s stabilizing its operating performance to previous levels while facing the current market developments.

The ratings also reflect El Aguila’s support from its parent company (including continuous capital contributions), 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.

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 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 14% in 2022 and expected to grow approximately 18% in 2023, which is in line with its expectations, however with a negative bottom line performance. Challenges for El Aguila in 2023 included net results being limited either from high acquisition costs in its auto line, the creation of catastrophe reserves and also from the impact of Hurricane Otis on its overall portfolio. AM Best will continue to monitor accumulated results and the impact on the company’s capital base, amid continuous support from its parent company in the form of capital contributions.

El Aguila’s risk-adjusted capitalization is strong, as measured by Best’s Capital Adequacy Ratio (BCAR), with underwriting risk standing as the main component for required capital. For 2023, the company benefited from a capital contribution by its parent company to support its capital position after two years of consecutive negative results. A key factor going forward for AM Best’s assessment of balance sheet strength will be the reinsurance recoverable generated by the effects of Hurricane Otis and the premium leverage to policyholders surplus.

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 execution risk or limitations in its business profile. Positive rating actions are unlikely in the short term, but they could occur if El Aguila sustains improvements in underwriting results and risk-adjusted capitalization in a steady fashion. A negative 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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