Fitch Affirms Seguros Inbursa at 'BBB' and 'AAA(mex)'; Outlook Stable

Fitch Ratings has affirmed Seguros Inbursa, S.A., Grupo Financiero Inbursa's (Inbursa) local currency Insurer Financial Strength (IFS) International Rating at 'BBB' and its IFS National Rating at 'AAA(mex)'. The Rating Outlook for both ratings is Stable.

KEY RATING DRIVERS

The affirmation reflects the stability in the fundamentals of the rating. The company remains in a leading position in the Mexican insurance sector as the fifth largest in terms of written premiums. This competitive position benefits from the strong brand recognition of its Mexican domiciled parent, Grupo Financiero Inbursa. The company also shows reasonable leverage ratios, good performance in net claims ratio, high reserves coverage to retained premiums, adequate liquidity position and a conservative reinsurance protection.

The rating also considers the company's high concentration in premiums written, with its most important policy representing a large portion of total (24% at December 2013), as well as a reduction on its profitability due to a net loss in financial income at the end of the first quarter of 2014.

Inbursa continues to underwrite the largest bi-annual non-life insurance policy in Mexico (Pemex's), which allows it to hold a market share of 6% as of March 2014. Nevertheless, the weight of this policy sharply reduces when considering retained premiums as a result of the reinsurance of the 95% of the risks covered by the policy.

Moreover, the company experienced a reduction on its operating profitability as of March 2014, mainly attributed to a net loss on its investment portfolio. This was driven by a negative trend in the market value on its variable income instruments (8% of total portfolio) and particularly in the stock price of a related company where it has the largest position. However, this the negative trend has reverted in the last months.

Additionally, Fitch believes that despite the volatility in valuation of those instruments, Inbursas's equity base and liquidity position remain adequate because losses from valuation do not affect its cash flow.

Despite Inbursa's net loss in profits, its technical performance is favored by a reasonable net loss ratio: 66.4% versus 73.0% in the market as of March 2014. Also, the company's leverage ratios are adequate and compare lower than the market's averages. Net leverage ratio of 5.2x was lower than the 6.7x in the market, whereas operating leverage ratio (retained premiums/equity) is well below the average (1.2x vs. 2.1x).

Inbursa's stringent technical and catastrophic provisioning policies, combined with the breakdown and retention levels of the company's premium portfolio, led to ample coverage of technical reserves over retained risks (250%). In addition, Inbursa shows an adequate liquidity position. Its liquid assets coverage to technical reserves of 1.0x is similar to the market's average.

RATING SENSITIVITIES

Key rating triggers that could lead to an upgrade in the international rating include greater business and client diversification, as well as an improvement in capital, performance and liquidity ratios in line with higher-rated international peers. As such, an improvement of the adjusted liabilities to equity ratio below 1.8x and the combined ratio closer to 100% may benefit the rating; while the liquid assets to technical reserves ratio improve above 1.2x.

Key rating triggers that could lead to a negative rating action include even higher client concentration; an increase in adjusted liabilities to equity ratio up to 3.3x; future earnings deterioration due to a combined ratio that exceed 115%; and a reduction in liquid asset to technical reserves ratio below 0.80x.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology - Global Master Criteria' (Nov. 13, 2013).

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=861874

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