AM Best Revises Financial Strength Rating and Issuer Credit Rating Outlooks to Negative; Affirms Credit Ratings of Tokio Marine HCC Mexico Compañía Afianzadora, S.A. de C.V.

NOVEMBER 15, 2024 11:02 AM (EST)

AM Best Revises Financial Strength Rating and Issuer Credit Rating Outlooks to Negative; Affirms Credit Ratings of Tokio Marine HCC Mexico Compañía Afianzadora, S.A. de C.V.

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FOR IMMEDIATE RELEASE

MEXICO CITY - NOVEMBER 15, 2024 11:02 AM (EST)
AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) of "a" (Excellent) of Tokio Marine HCC Mexico Compañía Afianzadora, S.A. de C.V. (TMHCC Mexico) (Mexico City, Mexico). Concurrently, AM Best has affirmed the Mexico National Scale Rating (NSR) of "aaa.MX" (Exceptional) of TMHCC Mexico. The outlook of the NSR is stable.

The Credit Ratings (ratings) reflect TMHCC Mexico's balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).

The FSR and Long-Term ICR outlook revisions reflect AM Best's expectation that TMHCC Mexico will not be able to reverse the negative trend in operating performance. Persisting competitive market conditions create heightened pressure over the execution of the company's business strategy, which could lead to a decline in the overall assessment of operating performance in the near term.

The ratings reflect TMHCC Mexico's affiliation with its parent company, Houston Casualty Company (HC), in terms of reinsurance protection, ERM and capital commitments. Limiting the ratings is the inherent risk of the company's ongoing execution of its business plan, and the volatility of Mexico's economy.

TMHCC Mexico is the Mexico-based surety subsidiary of HC; the former company received regulatory approval for operations in April 2019 and issued its first policy in July 2019. HC and TMHCC Mexico also have a sister company, Tokio Marine Compañía de Seguros, S.A. de C.V. (TMX), which is domiciled in Mexico. TMHCC Mexico takes advantage of TMX's corporate structure, which provides additional support to the operation.

TMHCC Mexico is developing its presence in Mexico through a predominant mix of construction and commercial administrative surety, strongly backed by a comprehensive reinsurance program largely placed with its parent company.

TMHCC Mexico's very strong balance sheet strength assessment is derived from its strongest level of risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR). To achieve its business targets, the company was capitalized with MXN 81.8 million in July 2019 and with MXN 30 million in November 2023. The company might require additional capital contributions as the operation evolves.

The adequate assessment of TMHCC Mexico's operating performance reflects the successful track record of its seasoned management and underwriting team, and the operational leverage the company gains from being integrated into the Tokio Marine Group. However, TMHCC Mexico's results demonstrate an opportunity for underwriting improvements and put pressure on the company's profitability. As of July 2024, the company's operating performance metrics still face a downturn, contributing to a net loss of MXN 3.2 million.

Negative rating actions could take place if the company is not able to improve its operating performance metrics and profitability generation capabilities or if AM Best determines that the strategic importance of the Mexico subsidiary to the Tokio Marine group has decreased.

While AM Best does not consider it likely, positive rating actions could take place if TMHCC Mexico's operating performance improves, while maintaining prudent capital management.

The methodology used in determining these ratings is Best's Credit Rating Methodology (Version Aug. 29, 2024), 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.

Key insurance criteria reports utilized:

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• Evaluating Country Risk (Version June 6, 2024)
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• Understanding Global BCAR (Version Aug. 1, 2024)
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• Available Capital and Insurance Holding Company Analysis (Version Aug. 15, 2024)
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• Rating Surety Companies (Version Apr. 25, 2024)
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• Best's National Scale Ratings (Version May 16, 2024)
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• Scoring and Assessing Innovation (Version Feb. 27, 2023)
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View a general description of the policies and procedures used to determine credit ratings. For information on the meaning of ratings, structure, voting and the committee process for determining the ratings and monitoring activities, relevant sources of information and the frequency for updating ratings, please refer to Guide to Best's Credit Ratings.

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• Previous Rating Date: Nov. 7, 2023
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• Initial Rating Date: Oct. 7, 2019
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• Date Range of Financial Data Used: Dec. 31, 2019-July 31, 2024
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Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.

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While the information obtained from the material source(s) is believed to be reliable, its accuracy is not guaranteed. AM Best does not audit the company's financial records or statements, or otherwise independently verify the accuracy and reliability of the information; therefore, AM Best cannot attest as to the accuracy of the information provided.

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