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AM Best Affirms Credit Ratings of Sofimex, Institucion de Garantias S.A.

BY Business Wire | CORPORATE | 02/03/23 11:14 AM EST

MEXICO CITY--(BUSINESS WIRE)-- AM Best has affirmed the Financial Strength Rating of A- (Excellent), the Long-Term Issuer Credit Rating of ?a-? (Excellent) and the Mexico National Scale Rating of ?aaa.MX? (Exceptional) of Sofimex, Institucion de Garantias S.A. (Sofimex) (Mexico City, Mexico). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect Sofimex?s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.

The ratings also reflect Sofimex?s strong operating performance in terms of profitability and competitiveness within Mexico?s surety bond market, as well as its strongest level of risk-adjusted capitalization, as measured by Best?s Capital Adequacy Ratio (BCAR). These positive rating factors are limited by AM Best?s view of the highly competitive market in which the company operates, and the current challenging economic environment.

Sofimex is a Mexico-domiciled surety and bond company that was established in 1940. The company offers surety and fidelity coverages, ranging from low limit judicial bonds to high limit contract bonds. As of September 2022, Sofimex?s business portfolio was composed of administrative sureties (84%), credit (9%), judicial (4%) and fidelity (3%).

Sofimex projects a gross written premium growth rate of 11% for 2023 while staying in line with its historical profitability metrics. AM Best believes that as one of Mexico?s largest surety underwriters, and with a good distribution network and disciplined underwriting, Sofimex has sufficient resources to maintain a stable stream of net income amid current market conditions.

Sofimex?s underwriting performance in 2021 was impacted by a non-recurrent large claim, reflecting in a 95% combined ratio, despite well-contained acquisition and operating expenses. Nevertheless, the company?s historical operating performance metrics have shown very low volatility and compare well with the industry; as of September 2022, the combined ratio has improved significantly to 67%.

Sofimex?s risk-adjusted capitalization has remained at the strongest level, as measured by BCAR, and supportive of its ratings, even when stressed by possible losses from contingent claims. Furthermore, Sofimex has an appropriate reinsurance program with highly rated reinsurers and long-term business relationships.

Positive rating actions could occur if the company is able to strengthen its capital management further while maintaining the strongest level of risk-adjusted capitalization. Negative rating actions could occur if underwriting performance deteriorates, if there is a significant increase in business risk due to a high concentration in the construction sector or because of uncertainty with regard to the government?s infrastructure spending, which could impact the growth of the surety market.

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 Guide to Best?s Credit Ratings. For information on the proper use of Best?s Credit Ratings, Best?s Performance Assessments, Best?s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best?s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright ? 2023 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

Source: AM Best

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In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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