A.M. Best Assigns Ratings to BUPA Mexico Compañía de Seguros, S.A. de C.V.

A.M. Best has assigned a financial strength rating (FSR) of B++ (Good), an issuer credit rating (ICR) of “bbb+”, and a Mexico National Scale Rating of “aa-.MX” to BUPA Mexico Compañía de Seguros, S.A. de C.V. (BUPA Mexico) (Mexico). The outlook assigned to all ratings is stable.

The ratings of BUPA Mexico reflect the importance and integration of the local subsidiary to its parent company, BUPA Insurance Company (BIC), enabling the group access to one of the biggest insurance markets in Latin America, favorable financial flexibility leveraged by a strong risk-adjusted capital position supported by a solid reinsurance program, and an experienced management team. Offsetting these positive rating factors is the subsidiary´s volatile and weak operating performance mainly derived from its 10% retention of premium, which makes the company dependent on capital injections from its group to support growth and maintain an adequate coverage of regulatory requirements.

The ratings reflect the affiliation of BUPA Mexico with its immediate parent, BIC, a widely recognized major medical individual and group coverage underwriter. The subsidiary offers the same array of products and adheres to its parent’s underwriting, risk management and investment policies. BUPA Mexico’s successful expansion in the insurance market leverages the group’s global brand recognition, reinsurance capacity and capital support provided by its immediate parent. Currently, BIC has an FSR of B++ (Good) and an ICR of “bbb+”.

Given the large capital support tendered by the parent company, BUPA Mexico maintains strong risk-adjusted capitalization, according to Best’s Capital Adequacy Ratio (BCAR), which fosters underwriting growth and provides financial flexibility. Given the subsidiary’s 10% retention of premium, the main component of required capital is derived from reinsurance recoverables, which is not a major concern despite being the only reinsurance counterparty, considering that 100% of BUPA Mexico’s reinsurance program is placed with BIC and provides an adequate level of security.

BUPA Mexico has grown above the market for the past five years, together with the robust reinsurance program held with BIC, conformed by a quota share contract in which the subsidiary cedes 90% of its premiums to the latter, complemented by an excess of loss agreement that further protects BUPA Mexico’s risk retention.

Another offsetting rating factor is the small size of the subsidiary, reflected in the small market share within the major medical expenses for individuals segment (BUPA Mexico ranks sixth in this line of business), which results in volatile operating performance. In addition, BUPA Mexico has historically registered negative bottom line results, mainly as a result of its 10% retention of premium and higher-than-market operating expenses, making it more dependent on capital support from its parent. The company expects to enhance its operational results by restructuring their acquisition fees and reducing its operational costs by taking advantage of synergies with its parent company.

If there are positive rating actions taken on BIC, the ratings of BUPA Mexico will move in tandem. Likewise, if there are negative rating actions taken on its immediate parent, the ratings of the subsidiary will mirror those same actions. Additionally, if A.M. Best’s view of the Mexican subsidiary’s strategic importance to the group deteriorates or if capital support narrows from historical levels, the ratings will likely be affected negatively.

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 Country Risk
• Rating Members of Insurance Groups
• 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: Sept. 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.

A.M. Best’s credit ratings are independent and objective opinions, not statements of fact. A.M. Best is not an Investment Advisor, does not offer investment advice of any kind, nor does the company or its Ratings Analysts offer any form of structuring or financial advice. A.M. Best’s credit opinions are not recommendations to buy, sell or hold securities, or to make any other investment decisions. View our entire notice for complete details.

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