A.M. Best Assigns Ratings to CESCE México, S.A. de C.V. and to CESCE Fianzas México, S.A. de C.V.

A.M. Best has assigned a financial strength rating of B++ (Good), an issuer credit rating of “bbb+” and a Mexico National Scale Rating of “aa-.MX” to CESCE México, S.A. de C.V. (CESCEM) (Mexico City, Mexico). At the same time, A.M. Best has also assigned a financial strength rating of B++ (Good), an issuer credit rating of “bbb+” and a Mexico National Scale Rating of “aa-.MX” to CESCE Fianzas México, S.A. de C.V. (CESCEF) (Mexico City, Mexico). The outlook assigned to all ratings is stable.

The ratings for CESCEM and CESCEF reflect its affiliation with Compania Espanola de Seguros de Credito a la Exportacion (CESCE), excellent risk-adjusted capitalization and well-structured reinsurance program. Partially offsetting these positive rating factors are the downsizing of CESCEM in recent years and its negative impact in operating performance, along with the intense competition in Mexico’s credit insurance segment. In the case of CESCEF, the previously mentioned positive rating factors are partially offset by the company’s start-up nature and the intense competition in Mexico’s surety segment.

CESCEM is 51% owned by CESCE’s subsidiary, Consorcio Internacional de Aseguradores de Credito (CIAC), and 49% owned by Banco Nacional de Comercio Exterior (BANCOMEXT), a Mexican development bank. CESCEM specializes exclusively in credit insurance. As of September 2015, the company ranked 4th in Mexico’s credit insurance segment with a market share of 5.02%. In this line of business, the three largest participants generate 92% of premiums. CESCEF began operations in 2011 and is wholly owned by CIAC.

CESCEF, which underwrites mostly administrative sureties, is ranked 15 among the 16 companies in Mexico’s surety segment (as of September 2015) with a market share of less than 1%.

CESCEM and CESCEF leverage their operations through the underwriting and business expertise of its 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 both its Mexican subsidiaries. Additionally, CESCE has historically maintained well-capitalized operations in both companies.

Both companies are strongly capitalized as enterprise risk management practices are well-established and limit risk exposures substantially through a conservative underwriting and investment policy, comprehensive reinsurance program mainly placed with its parent and affiliates and the remainder within counterparties with a good level of security.

CESCEM has sustained this level of capitalization despite posting negative results during the past three years with 2015 generating the largest expected losses, which demonstrates the adequacy of its capital base. In addition, capitalization levels of CESCEM have remained strong as a consequence of a reduction in premiums over the past three years. This trend was finalized during 2015 for which the company posted 35% growth through September 2015. Such a reduction in premiums mainly reflects the highly competitive environment in Mexico’s credit insurance market, as well as adjustments in underwriting practices in line with those of its parent. The ratings of CESCEM recognize the current inflection point in which the company is at, as efforts are being made to cleanse its business portfolio and enhance its product offerings at the same time it diversifies its client base. A.M. Best believes these changes should result in a medium term improvement of its operating indicators.

For CESCEF, this level of capitalization has been sustained through important capital injections in 2012 and 2013, despite posting negative results during its first three years of operation. For 2014, the company was able to post positive results and this trend is expected to continue into 2015 with marginal positive results, reaching a turn-around of its business after five years of operation.

Negative rating actions will occur if A.M. Best’s views on parental support or strategic importance to its group for both subsidiaries deteriorate.

Positive rating factors that could lead to an improvement in CESCEM’s ratings include substantial improvement in its combined ratio as a result of higher efficiency, improvements in underwriting, and successfully implementing its strategy for healthier premium growth in line with adequate capitalization levels. Additional factors that could result in a downgrade for CESCEM’s ratings include the continued deterioration of operating performance to levels that affect its capital base and render its risk-adjusted capitalization to levels that do not support the current rating.

Positive factors that could lead to an improvement in CESCEF’s ratings include maintaining positive operational performance and allowing the company to reach break-even while maintaining strong capitalization levels. Additional negative rating factors that could result in a downgrade for CESCEF ratings include negative operating performance that significantly erodes its capital base to levels that are no longer supportive of the current rating.

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. 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:

• A.M. Best Ratings On a National Scale
• Evaluating Non-Insurance Ultimate Parents
• Evaluating Country Risk
• Insurance Holding Company and Debt Ratings
• Rating Members of Insurance Groups
• Rating Surety Companies
• Risk Management and the Rating Process for Insurance Companies
• Understanding Universal BCAR

View a general description of the policies and procedures used to determine credit ratings. Also in accordance with Mexican regulations, the following is a link to required disclosures – A.M. Best America Latina Supplementary Disclosure.

• Previous Rating Date: Not rated.
• Date of Financial Data Used: September 30, 2015.

This press release relates to rating(s) that have been published on A.M. Best's website. For additional 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 A.M. Best’s Recent Rating Activity web page.

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