A.M. Best Revises Outlooks to Positive for BUPA Mexico Compañía de Seguros

Friday, August 5, 2016


By A.M. Best

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MEXICO CITY, August 5, 2016–A.M. Best has revised the outlooks to positive from stable and affirmed the financial strength rating of B++ (Good), the issuer credit rating of "bbb+" and the Mexico National Scale Rating of "aa-.MX" of BUPA Mexico Compañía de Seguros, S.A. de C.V. (BUPA Mexico) (Mexico).

The revision in the outlooks mirrors the revised outlooks for its immediate parent company Bupa Insurance Company (BIC), which reflect operational and capital support from the ultimate parent organization, The British United Provident Association Limited (BUPA), a global health and care company. The ratings take into consideration the parent's creditworthiness and the access to BUPA's well-established network and other resources, which enhance BIC's competitive advantage. A.M. Best anticipates that the operational support and financial flexibility afforded by BUPA will continue. A.M. Best will continue to monitor BIC's strategic fit within the parent organization.

The ratings of BUPA Mexico reflect the importance and integration of the local subsidiary to BIC, which provides the group access to one of Latin America's largest insurance markets. The ratings also reflect BUPA Mexico's favorable financial flexibility leveraged by a strong risk-adjusted capital position that is supported by a solid reinsurance program, as well as its 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 parent to support growth and maintain adequate capital under regulatory requirements.

The ratings also reflect BUPA Mexico's affiliation with 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 into Mexico's insurance market leverages the group's global brand, reinsurance capacity and capital support provided from BIC. Currently, BIC has an FSR of B++ (Good) and an ICR of "bbb+".

Given the large capital support tendered by BIC, BUPA Mexico maintains strong risk-adjusted capitalization, as measured by 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. A.M. Best does not view this as a major concern, considering that 100% of BUPA Mexico's reinsurance program is placed with BIC, which provides an adequate level of security.

BUPA Mexico's growth has outpaced the market for the past five years. A robust reinsurance program held with BIC involves a quota share contract under which the subsidiary cedes 90% of its premiums to BIC. This is complemented by an excess of loss agreement that further protects BUPA Mexico's risk retention.

An offsetting rating factor is the small size of the subsidiary, reflected in the small market share within the major medical expenses for individuals segment, which results in volatile operating performance. BUPA Mexico ranks sixth in this line of business. 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. However, the company expects to enhance

operational results by restructuring its acquisition fees and reducing operational costs through 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 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.