AM Best affirmed the Financial Strength Rating of B++ (Good), the Long-Term Issuer Credit Ratings of “bbb” (Good) and the Mexico National Scale Rating of “aa.MX” (Superior) of CESCE México, S.A. de C.V. (CESCEM) and its affiliate, CESCE Fianzas México, S.A. de C.V. (CESCEF). The outlook of these Credit Ratings (ratings) is stable. Both companies are domiciled in Mexico City, Mexico.

The ratings of CESCEM reflect the company’s balance sheet strength, which AM Best assesses as very strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management (ERM).

The ratings of CESCEF reflect the company’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate ERM.

The ratings of CESCEM and CESCEF also reflect their affiliation with Compañía Española de Seguros de Crédito a la Exportación, S.A. Compañía de Seguros y Reaseguros (CESCE), excellent risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), and well-structured reinsurance program. Partially offsetting these positive rating factors for CESCEM and CESCEF are the competitive market dynamics in Mexico’s credit insurance and surety segments.

CESCEM is 51% owned by CESCE’s subsidiary, Consorcio Internacional de Aseguradores de Credito, S.A. (CIAC), and 49% owned by Banco Nacional de Comercio Exterior, a Mexico-based development bank. CESCEM specializes exclusively in credit insurance and ranks in the top five of Mexico’s credit insurance segment.

CESCEF began operations in 2011 and is wholly owned by CIAC. CESCEF currently has a small share of Mexico’s surety market. The company’s business portfolio is concentrated almost completely in administrative surety, which is consistent with the portfolios of other market participants.

CESCEM and CESCEF leverage their operations through the underwriting and business expertise of their parent company, CESCE, adhering to its policies and procedures, as well as receiving reinsurance support from CESCE and its affiliates, which is supportive of the financial strength of its Mexico-based subsidiaries.

AM Best considers the risk-adjusted capitalization of each company to be at the strongest level, as measured by BCAR. The companies’ ERM practices are well-established and limit risk exposures substantially through a conservative underwriting and investment policy, as well as a comprehensive reinsurance program mainly placed with its parent and affiliates, with the remainder placed with high-quality counterparties.

CESCEM’s ratings factor in the company’s historical profitability targets, in addition to a highly concentrated and competitive market. In 2022, CESCEM’s profitability of MXN 19 million resulted from contained claims, a constant inflow of reinsurance commissions and improved investment income due to high interest rates. In 2023, CESCEM’s net income result reached a record value of MXN 25 million, driven by reinsurance commissions, reserves release and record financial income. The company generated a combined ratio of 59% compared with 85% in 2022.

CESCEF’s risk-adjusted capitalization remains at the strongest level, as measured by BCAR, and has been sustained through capital injections in the past few years. The company historically has posted positive bottom-line results due to adequate premium volume, low loss ratios and strong underwriting practices. However, a capital injection in 2019 offset a net loss that was driven mainly by a large claim. In 2023, CESCEF sustained profitable results due to record investment results, reflecting a 1.6% return on equity. AM Best expects the company’s operating expenses to improve compared with historical trends. Surety companies continue to face a challenging growth environment, given the low volume of public works tenders. These factors, in conjunction with CESCEF’s small market share, increase the vulnerability of the company’s business model.

CESCEM’s stable outlooks reflect AM Best’s expectation that the company will maintain its balance sheet strength assessment at the very strong level as it continues with its prudent underwriting practices. Positive rating actions could occur if the company continues achieving a positive trend that denotes steady premium sufficiency in the medium term.

Negative rating actions could also occur if CESCEM’s operating performance deteriorates to a level that affects its capital base.

CESCEF’s stable outlooks reflect AM Best's expectation that the company will maintain its balance sheet strength assessment at the very strong level, supported by risk-adjusted capitalization at current levels as this economic cycle evolves. Positive rating actions are not expected in the medium term, but could occur if there is a constant strengthening of the company’s capital base, while maintaining its current levels of risk-adjusted capitalization.

Negative rating actions could occur if CESCEF’s bottom line results erode either from high administrative expenses or lower investment income.

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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