AM Best Removes From Under Review With Developing Implications and Upgrades Credit Ratings of XL Seguros Mexico, S.A. de C.V.

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AM Best has removed from under review with developing implications and upgraded the Financial Strength Rating (FSR) to A+ (Superior) from A (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “aa-” from “a+” of XL Seguros Mexico, S.A. de C.V. (XLSM) (Mexico). In addition, AM Best has removed from under review with developing implications and affirmed the Mexico National Scale Rating of “aaa.MX”. The outlook assigned to these Credit Ratings (ratings) is stable.

In March 2018, the ratings of XLSM were placed under review with developing implications following AXA S.A.’s (AXA or the group) announcement that it had entered into an agreement to acquire 100% of XL Group Ltd (XL) for a cash consideration of USD 15.3 billion. The latest rating actions follow the completion of this transaction, on Sept. 12, 2018, and the conclusion of AM Best’s assessment of its impact on the credit fundamentals of the group and its rated subsidiaries. In AM Best’s opinion, the execution risk associated with the acquisition has been partially alleviated, as completion of the transaction and integration to date has been in line with expectations. Furthermore, although the transaction has resulted in an increase in financial leverage for AXA, AM Best expects this situation to be temporary, as the group has presented a clear plan to reduce leverage over the coming years. AXA is expected to maintain a very strong balance sheet, strong operating performance, although the XL business has the potential to introduce some volatility, a very favorable business profile and very strong enterprise risk management (ERM).

XLSM is a member of XL group, which, on a consolidated basis, has a balance sheet strength that AM Best categorizes as very strong, as well as its adequate operating performance, favorable business profile and appropriate ERM.

The rating upgrades reflect XL’s strategic importance to, and strategic alignment with, AXA, in enhancing the group’s position in the commercial global property & casualty (P&C) insurance sector, with XL receiving rating enhancement as a result. XL is considered well-integrated within the AXA group, and AM Best expects that prompt and sufficient operational and financial support will be made available from the AXA group to XL should it be required.

XLSM began operations in 2004 as a subsidiary of XL Swiss Holdings Ltd, which holds a 99.99% stake and is owned by XL. XLSM provides domestic and multinational companies, as well as its network partners across Latin America and the Caribbean, with risk engineering and customized insurance solutions from its Mexico City and Monterrey offices.

XLSM benefits from being integrated into the XL group, gaining operational leverage through the same practices and procedures, reinsurance, underwriting selection and ERM practices. XLSM serves as an underwriting channel for the group, ceding 99.9% of written premiums to its British affiliate, XL Insurance Company SE. This enables XLSM to reduce its underwriting and leverage risk. However, given the nature of its operation, XLSM is susceptible to credit risk due to the high amount of reinsurance recoverables, which AM Best believes are not be a major concern given that these exposures are within the group.

Historically, XLSM has produced marginal losses; however, since 2015, the company has been able to produce positive bottom-line results due to efficiencies in operating and administrative expenses, and the sizeable growth the company has achieved since 2016.

XL historically has demonstrated its support for XLSM by providing capital contributions during the past five years. The last capital contribution took place in 2015, which was equivalent to 18% of XLSM’s 2014 reported surplus. This, in addition to good profitability indicators for year-end 2016 and 2017, resulted in solid risk-adjusted capital, as measured by Best’s Capital Adequacy Ratio (BCAR).

If negative rating actions are taken on the main operating subsidiaries of XL as a result of a material deterioration in the risk-adjusted capitalization, performance or financial leverage at the holding company, or as a result of a weakening of the strategic importance of AXA XL to its ultimate parent, AXA, the global scale ratings of XLSM will move in tandem. Positive/negative pressure is also subject to rating actions taken on the ultimate parent company and lead rating unit, AXA S.A.

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 Understanding 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 rating agency and information provider with a unique focus on the insurance industry. Visit for more information.

Copyright © 2018 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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Business Wire: 18:10 GMT Thursday 6th December 2018

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