AM Best has affirmed the Financial Strength Rating of A+ (Superior), the Long-Term Issuer Credit Rating of “aa-” (Superior) and the Mexico National Scale Rating of “aaa.MX” (Exceptional) of Berkley International Fianzas Mexico S.A. (BFM) (Mexico City, Mexico). The outlook of these Credit Ratings (ratings) is stable.
BFM is a member of W. R. Berkley Insurance Group (Berkley Group), which on a consolidated basis, has a balance sheet strength that AM Best assesses at the strongest level, as well as strong operating performance, a favorable business profile and appropriate enterprise risk management (ERM).
The ratings reflect BFM’s substantial reinsurance support from its group through the Berkley Insurance Company. Additionally, the ratings factor in BFM’s integration with its parent company, W. R. Berkley Corporation (W. R. Berkley), in terms of underwriting, ERM and capital commitments. Limiting the ratings is the inherent risk of a startup company implementing its business plan amid the challenges derived from the weakening of Mexico’s economy.
BFM was formed in November 2016, and is the Mexico surety subsidiary of W. R. Berkley. The company received regulatory approval for operations in June 2017 and issued its first policy that same month. The company plans to develop a regional presence in northwest Mexico, through a predominant mix of administrative surety and a lesser portion of credit and judicial products strongly backed by a comprehensive reinsurance contract with its parent company.
BFM’s strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), is derived from its strong capital position in support of its premium growth during its first years of operation, which is strengthened further by the comprehensive reinsurance contract with its parent company. Furthermore, AM Best recognizes W. R. Berkley’s commitment to its subsidiaries providing additional capital fungibility to the Mexico operation.
BFM has been able to grow it business volume during the past six years, while navigating the challenges that the Mexico’s surety segment has faced, specifically due to the economic slowdown that lingered after the COVID-19 pandemic. During 2022, BFM took advantage of the conditions in Mexico that allowed the construction segment to regain motion, which resulted in significant premium growth. BFM’s experienced team of underwriters expect their underwriting capabilities to continue providing resources for the company to keep developing its business base. The company takes advantage of the reinsurance support received form the Berkely Group, which has allowed BFM to achieve premium sufficiency, and strengthen profitable results through investment income.
If negative rating actions are taken on the main operating subsidiaries of the Berkley Group for a significant drop in equity, preventing the organization from maintaining the expected risk-adjusted capitalization levels, BFM’s ratings likely would move in tandem. Negative rating actions also could occur to the insurance operations as a result of a sustained deterioration in BFM’s underwriting or operating results, driven by either current accident year results or adverse development of loss reserves from prior years. If the financial position of the ultimate parent weakens, requiring the withdrawal of capital from the group’s various insurance companies or increases financial leverage or leads to a decline in interest coverage at the holding company that is not supportive of the current ratings level, negative rating actions could be taken on the Berkley Group, and BFM’s ratings would reflect those actions.
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