PRESS RELEASE

A.M. Best Revises Outlooks to Stable for BUPA México Compañía de Seguros

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Wednesday, August 22, 2018

By A.M. Best

MEXICO CITY, August 22, 2018-A.M. Best has revised the outlooks to stable from positive and affirmed the Financial Strength Rating of B++ (Good), the Long-Term Issuer Credit Rating (Long-Term ICR) of "bbb+" and the Mexico National Scale Rating of "aa+.MX" of BUPA México Compañía de Seguros, S.A. de C.V. (BUPA Mexico) (Mexico).

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The Credit Ratings (ratings) reflect BUPA Mexico's balance sheet strength, which A.M. Best categorizes as strongest, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management.

The revision of the outlooks to stable reflects continued volatility in the operating performance from BUPA Mexico's parent company, Bupa Insurance Company (BIC), resulting from its evolving business model. Operating performance has fluctuated over the years, and underwriting losses were reported in 2017 and through mid-2018.

The rating affirmations of BUPA Mexico reflect the importance and integration of the local subsidiary to BIC, which provides its group with access to one of Latin America's largest insurance markets, and the operational and capital support from the ultimate parent organization, The British United Provident Association Limited (BUPA), a global health and care company. The ratings also consider 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 also reflect BUPA Mexico's favorable financial flexibility leveraged by a strong risk-adjusted capital position 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 subsidiary offers the same array of products as BIC, and adheres to its 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.

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. In addition, BUPA Mexico has historically registered negative bottom line results, mainly as a result of elevated loss and administrative expense ratios given its low premium retention, making it more dependent on capital support from its parent. The company foresees costs stabilizing in the medium and long term.

If positive rating actions are taken on BIC, the ratings of BUPA Mexico will move in tandem. Likewise, if there are negative rating actions taken on its immediate parent as a result of a material decline in risk-adjusted capitalization, downgrade in country risk tier in its core business markets or if strategic alignment or operational support with the ultimate parent, BUPA, changes materially, the ratings of BUPA Mexico will mirror those actions. Additionally, if A.M. Best's view of the Mexican subsidiary's 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.