AM Best Downgrades Credit Ratings of BUPA México, Compañía de Seguros, S.A. de C.V.
17 Septiembre 2021 - 1:30PM
Business Wire
AM Best has downgraded the Financial Strength Rating
(FSR) to C++ (Marginal) from B++ (Good), the Long-Term Issuer
Credit Rating (Long-Term ICR) to “b+” (Marginal) from “bbb+” (Good)
and the Mexico National Scale Rating to “bbb.MX” (Good) from
“aa+.MX” (Superior) of BUPA México, Compañía de Seguros, S.A. de
C.V. (Bupa Mexico) (Mexico). The outlook of these Credit Ratings
(ratings) is stable.
The ratings reflect Bupa Mexico’s balance sheet strength, which
AM Best assesses as weak, as well as its adequate operating
performance, limited business profile and appropriate enterprise
risk management.
The rating downgrades reflect deterioration in the balance sheet
strength of Bupa Mexico, as a result of the change in the company’s
retention profile, and the substantial increase in underwriting
risk. The ratings also reflect the anticipated cancellation of the
quota-share reinsurance agreement with the parent company, Bupa
Insurance Company (BIC), in which 90% of the risk was ceded. AM
Best will continue to monitor Bupa Mexico’s strategic fit within
the parent organization.
Bupa Mexico is a subsidiary of Bupa Insurance Company (BIC), and
is tied to the group’s commercial strategy of expanding into
Mexico's insurance market, leveraging on the Bupa brand. Bupa
Mexico focuses in the individual and group major medical coverage
segment, and the individual represents the biggest share of
business of approximately 87%. The target market used to be small
clients with high net worth; however, the company now is seeking a
differentiation factor by opening up to other sectors with a lower
premium, but a higher volume.
The company’s historically favorable financial flexibility was
achieved through the capital and reinsurance support provided by
its ultimate parent, and reflected in Bupa Mexico’s strongest
risk-adjusted capitalization, as measured by Best’s Capital
Adequacy Ratio (BCAR) as of year-end 2020. Beginning October 2021,
the change in the reinsurance program significantly raises the
Mexican subsidiary’s underwriting risk, pressuring the BCAR scores,
and the overall balance sheet assessment, in spite of the MXN 307
million capital contribution received from the parent company.
Bupa Mexico’s business volume has outpaced the market for the
past five years, presenting a compound annual growth rate of 21.6%.
However, an offsetting rating factor is the small size of the
subsidiary, reflected in a market share of 4% as of December 2020
in an industry led by bigger participants. As of June 2021, Bupa
Mexico posted a positive bottom-line result of MXN 52.7 million,
which was mainly a result of a decrease in claims, as well as a
transition to an internal service team, which includes areas of
customer service and a core business system. The company foresees
these changes reducing operating expenses in the medium term;
however, a challenging and concentrated operating environment raise
uncertainty over the expected success of the new business
strategy.
Positive rating actions could occur as a result of sustained
improvement in balance sheet strength as a consequence of the new
business strategy being successfully executed. Negative rating
actions could occur if the strategic importance of the company to
BUPA group decreases, which could diminish AM Best’s expectations
of parental support toward the Mexican subsidiary, or if its
risk-adjusted capitalization declines to levels no longer
supportive of the current ratings. Negative rating actions could
also take place as a result of the execution risk derived from the
new business strategy.
The methodology used in determining these ratings is Best’s
Credit Rating Methodology (Version Nov. 13, 2020), which provides a
comprehensive explanation of AM Best’s rating process and contains
the different rating criteria employed in the rating process.
Best’s Credit Rating Methodology can be found at
www.ambest.com/ratings/methodology.
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 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.
Copyright © 2021 by A.M. Best Rating
Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.
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Olga Rubo, FRM Financial Analyst +52 55 1102
2720, ext. 134 olga.rubo@ambest.com
Christopher Sharkey Manager, Public Relations
+1 908 439 2200, ext. 5159
christopher.sharkey@ambest.com
Alfonso Novelo Senior Director, Analytics +52
55 1102 2720, ext. 107 alfonso.novelo@ambest.com
Jim Peavy Director, Communications +1 908 439
2200, ext. 5644 james.peavy@ambest.com