AIG Seguros Mexico 'A-' Global Scale And 'mxAAA' National Scale Ratings Affirmed, Outlook Remains Stable

  • We consider that AIGMX's robust capital adequacy levels support its credit quality, although its relatively small capital base limits our financial risk profile assessment. We continue to view AIGMX's competitive position as comparable to its Mexican industry peers.
  • In our view, AIGMX is a strategically important subsidiary to its parent, AIG Inc., which provides the rating on the Mexico-based insurer a one-notch uplift above its stand-alone credit profile (SACP).
  • We're affirming our 'A-' global scale and 'mxAAA' national scale financial strength ratings.
  • The stable outlook on our global scale rating mirrors the outlook on Mexico, whose credit quality acts as a constraint on AIGMX's. The outlook on our national scale rating is also stable.
MEXICO CITY (S&P Global Ratings) Jan. 10, 2019--S&P Global Ratings affirmed 
its 'A-' global scale and its 'mxAAA' national scale financial strength 
ratings on AIG Seguros Mexico, S.A. de C.V. (AIGMX). The outlook on both 
ratings remains stable.

Our ratings on AIGMX reflect our views of its adequate operating performance, 
sound product mix, and solid capitalization levels. Moreover, we assess the 
potential for extraordinary support to AIGMX from its U.S.-based parent, 
American International Group Inc. (BBB+/Negative/A-2), which gives the rating 
a one-notch uplift (out of three possible) above the subsidiary's stand-alone 
credit profile (SACP). In addition, the company continues to post strong 
liquidity, and its risk management and enterprise risk frameworks are adequate 
for its business and risk profiles.

We assess AIGMX's business risk profile based on our views on industry and 
country risk, and on our assessment of the company's competitive position. We 
consider Mexico's non-life sector industry and country risk (see "Insurance 
Industry And Country Risk Assessment: Mexico Property/Casualty And Health," 
published on June 7, 2018) as intermediate. Our assessment incorporates 
Mexico's economic, political, and financial system risks, along with insurance 
risks in the marketplace. In particular, our assessment considers the 
industry's favorable growth prospects, given low insurance penetration in 
Mexico--combined with sound macroeconomic prospects and diligent regulatory 
framework-- supports industry development and growth. 

We consider that AIGMX's operating performance continues to be in line with 
those of Mexican peers operating in comparable industry segments. Recent 
strengthening of operating performance and profitability reflected in local 
accounting are, for the mostly resulted from improvements in internal 
reinsurance treaties with AIG's reinsurance entities. Since 2016, AIGMX is 
able to retain locally larger reinsurance fees from ceded business. Although 
ceded premiums account for about 80% of GPW, AIGMX's statutory figures are 
more comparable with those of peers on a net basis. We previously assessed its 
performance on a gross basis only to address distortions from high reinsurance 
utilization. Nevertheless, underwriting discipline and operating efficiencies 
at the core business continue to support AIGMX's healthy operating performance 
and favorable prospects, in our view.

AIGMX's robust capitalization level supports its financial risk profile. The 
company's total adjusted capital (TAC) continues to be redundant to our 'AAA' 
rating category benchmark, according to our risk-based capital model. However, 
the relatively small capital base, measured by TAC, at approximately $100 
million, limits our assessment. Furthermore, AIGMX's capital and earnings are 
not subject to material sources of volatility, because its investment 
portfolio is conservatively managed and its high reinsurance utilization level 
grants stability to its portfolio. This was seen following the 2017 
earthquakes in Mexico, where the net retained losses were marginal.

We expect capital injections from AIG, which have historically supported the 
Mexican operation, will eventually end as the company becomes more independent 
financially from its parent. In this scenario, we expect AIGMX to fund its 
growth through retained earnings. Therefore, we don't expect aggressive 
dividend payouts.

In addition, we believe AIGMX's financial flexibility remains adequate and its 
liquidity ratio as strong at 211%. Furthermore, we consider the company's 
enterprise risk management framework (ERM), and its management and governance 
as sufficient, considering its operation and types of risks it retains.
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