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 Sompo Seguros Mexico, S.A. de C.V. (Sompo Mexico) (Mexico City, Mexico).
The outlook of these Credit Ratings (ratings) is stable.
Sompo Mexico is a subsidiary of Sompo America Insurance Company (SAIC) and a member of Sompo Japan Insurance Inc. (SJ), the core operating unit of the SOMPO Holdings, Inc., (SOMPO Holdings), the ultimate parent and one of the largest non-life insurance groups in Japan. On a consolidated basis, SJ has a balance sheet strength that AM Best assesses as strongest, as well as strong operating performance, favorable business profile and appropriate enterprise risk management (ERM).
The ratings recognize Sompo Mexico's integration and support from SJ through SAIC, which provides synergies and operating efficiencies to the Mexico subsidiary. Sompo Mexico maintains the strongest level of risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR). Partially offsetting these positive rating factors is the company's small market share, even though its combined ratio and profitability levels compare well with the industry.
Sompo Mexico initiated business in 1998; the company underwrites property/casualty business and stands as a strategic hub from which SJ plans to continue expanding operations into other Latin America markets. Sompo Mexico follows the group's international strategy and underwrites mostly referred business from SJ, but with a growing interest in its domestic market.
Sompo Mexico's risk-adjusted capitalization also is supported by the company's solid reinsurance program and small retention profile, as well as historical positive bottom-line results reflected in good profitability metrics and conservative profit retention policies. Sompo Mexico's strong underwriting results are mainly a consequence of underwriting referred business for the Mexico operations of SJ's global clients, as well as commissions from a diversified reinsurance program with highly rated reinsurers, which includes SJ as the program leader. In addition, the company's conservative investment policies provide a steady flow of revenues in support of net income.
In 2020, Sompo Mexico's performance was characterized by the positive effect of a depreciating Mexico peso against the U.S. dollar in its premiums issued and also in its investment results; business generation was limited by a stronger risk selection and adverse market conditions. Nevertheless, the company posted a return-on-equity ratio of 7.7%. The company still benefits from being integrated into SJ, gaining operational leverage through the same systems, procedures and ERM practices.
Rating actions taken on SJ will most likely result in equivalent rating actions for Sompo Mexico, unless AM Best determines that the strategic importance of the Mexico subsidiary to SJ has decreased. Sompo Mexico also has to maintain its strongest level of risk-adjusted capitalization, supported by good technical and bottom-line results, in order for positive rating actions to occur. Negative rating actions could occur if there is material deterioration in SJ's risk-adjusted capitalization caused by substantial investment losses or a large-scale natural catastrophe. Negative rating actions could also occur if there is significant deterioration in SOMPO Holdings, Inc.'s credit profile, including its risk-adjusted capitalization, financial leverage or interest coverage levels.
The methodology used in determining these ratings is Best's Credit Rating Methodology (Version Nov. 13, 2020), which provides a comprehensive explanation of AM 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.
SOMPO HOLDINGS INC. 
