AM Best has affirmed the Financial Strength Rating of A- (Excellent), the Long-Term Issuer Credit Rating of "a-" and the Mexico National Scale Rating of "aaa.MX" of Sofimex, Institucion de Garantias S.A. (Sofimex) (Mexico City, Mexico). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Sofimex’s balance sheet strength, which AM Best categorizes as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.
The ratings also reflect Sofimex’s strong operating performance in terms of profitability and competitiveness within Mexico’s surety bond market, as well as its strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). These positive rating factors are limited by AM Best’s view of the highly competitive market in which the company operates, and the currently challenging economic environment.
Sofimex is a Mexico-domiciled surety and bond company that was established in 1940. The company offers surety and fidelity coverages, ranging from low limit judicial bonds to high limit contract bonds. As of September 2020, Sofimex’s business portfolio was composed of administrative sureties (86.5%), credit (6.1%), judicial (3.8%) and fidelity (3.6%).
Sofimex projects an 11% gross written premium growth rate for 2021 while staying in line with its recent profitability metrics. AM Best believes that, as one of Mexico’s largest surety underwriters, and with a good distribution network and disciplined underwriting, Sofimex has sufficient resources to maintain a stable stream of net income amid current market conditions.
Sofimex continued to post a sound underwriting performance in 2019 and up to September 2020. In 2019, the company’s loss ratio increased to 10.4% from 7.9%, which was offset by a decline in acquisition costs. The company’s operating performance metrics show very low volatility, a positive trend in premium sufficiency, and compare well with the industry. Retention remained stable at 67%. Overall, the company has been able to maintain a combined ratio below 70% over the past five years.
Sofimex’s risk-adjusted capitalization has remained at the strongest level, as measured by BCAR, and supportive of its ratings, even when stressed by possible losses from contingent claims. Furthermore, Sofimex has an appropriate reinsurance program with highly rated reinsurers and long-term business relationships.
Positive rating actions could occur if the company is able to maintain its current levels of premium sufficiency, increase profitability and, as a consequence, further strengthen its risk-adjusted capitalization. Negative rating actions could occur if underwriting performance deteriorates, if there is a significant increase in business risk, as a result of a high concentration in the construction sector, or as a result of uncertainty with regard to the government’s spending in infrastructure, which could impact the growth of the surety market.
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 media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
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 New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.
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Olga Rubo, FRM
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Senior Director, Analytics
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