(The following was released by the rating agency)
-- Mexico-based insurer ACE Seguros is a strategically
important subsidiary to its parent ACE Group.
-- We have assigned our 'A-' financial strength rating to
-- The stable outlook is based on our expectations that the
company will maintain its strategic importance for its parent
and that it will continue to focus on accident and health
business line and will maintain strong capital levels.
Rating Action On Oct. 4, 2012, Standard & Poor's Ratings
Services assigned its 'A-' financial strength rating to ACE
Seguros S.A. The outlook is stable.
The rating on ACE Seguros is based on its membership in the
ACE Group, top management's extensive expertise, the successful
development of its corporate strategy, and the strong level of
capitalization due to a very conservative investment portfolio
and good earnings generation. The negative rating factors
include the company's small scale in the competitive Mexican
insurance industry and a somewhat low diversification of its
ACE Seguros is the Mexican subsidiary of ACE Group, and ACE
INA International Holding, Ltd., both of which hold all of the
subsidiary's shares. Under our group methodology, ACE Seguros is
a strategically important subsidiary to its parent, which
provides three-notch uplift to its stand-alone credit profile.
ACE Seguros was incorporated into the group in 1999 following
ACE Group's acquisition of Cigna. The group is expecting to
further expand its presence in Latin American markets in the
upcoming years, and it considers Mexico and Brazil as the most
significant markets in the region.
We regard ACE Seguros' business risk profile as marginal due
to the solid management experience, the long track record of ACE
Group in Latin America and Mexico in particular, the consistent
support from its parent, and the ability to position the company
as niche product insurer. Its corporate strategy only focuses on
the lines of business that generate net profits.
Despite holding only 1% of total market share, the company
has a large presence in A&H lines, which is the core of its
business. Furthermore, ACE Seguros is the second-largest
provider of car insurance for tourists and personal accident
insurance. In our view, one of the company's main weaknesses is
the small diversification of its distribution channels, because
ACE Seguros still depends on nonexclusive brokers to sell about
62.5% of its premiums.
Standard & Poor's considers ACE Seguros' enterprise risk
management (ERM) to be adequate, since it is based on ACE
Group's ERM practices and we do not expect the company will
experience losses in excess of its risk tolerances for
traditional insurance risks.
Our view of the company's financial profile is based on the
strong level of capitalization, and its good profitability and
credit quality of its investment portfolio.
We consider its operating performance to be satisfactory
mainly because of, with the exception of 2007 and 2008, the
company has shown net profits, positive underwriting results,
and better combined ratios than the industry. However, for the
past three years, its average return on revenues of 4.7% and
return on equity of 7% had been slightly lower than the industry
averages. The lower investment yields, given the very
conservative investment policies and higher catastrophic
reserves than the industry, result in a lower profitability,
despite the company's better underwriting profile, as seen in
its very low loss ratios (38% average in the past six years). We
consider ACE Seguros' capitalization as very strong based on the
results obtained in our capital adequacy model that illustrate
strong reinsurance program which limits its retention levels and
catastrophic exposure and soundness of its investment portfolio.
The stable outlook on ACE incorporates our expectations of
its good performance and that the company will remain a
strategically important subsidiary, taking advantage of the
group's expertise and support that currently results in
three-notch uplift in the company's stand-alone profile. We
expect the company to remain focused on the A&H business
offering differentiated products, which has been the core of its
corporate strategy and resulted in a profitable business. We
expect the life business to start increasing its share of the
company's operation, resulting in about 15% of GWP by 2017. In
2012 and 2013, we expect a growth in GWP of about 15%-20%,
probably slowing by 2013, underwriting profitability to remain
good with combined ratios of 85%-90% thanks to loss ratios of
around 35%. Our outlook is also based on the expectation that
capitalization will remain very strong due to conservative
investment policies and good profitability.
We could downgrade the company if it doesn't meet our
expectations on operating and underwriting performance, if
capital adequacy, as measured by our capital model,
deteriorates, or if we believe that the company is no longer a
strategically important subsidiary for the parent.
Related Criteria And Research
-- Assumptions For Quantitative Metrics Used In Rating
Insurers Globally, April 14, 2011
-- Refined Methodology And Assumptions For Analyzing Insurer
Capital Adequacy Using The Risk-Based Insurance Capital Model,
June 7, 2010
-- Interactive Ratings Methodology, April 22, 2009
-- Group Methodology, April 22,
-- Summary Of Standard & Poor's Enterprise Risk Management
Evaluation Process For Insurers, Nov. 26, 2007
New Rating; CreditWatch/Outlook Action
ACE Seguros, S.A.
Counterparty Credit Rating
Local Currency A-/Stable/--
Financial Strength Rating
Local Currency A-/Stable/--