Mexican insurers may face challenging growth due to profit erosion, warns Moody's

Moody's has revised the outlooks of seven insurers in Mexico to negative from stable, including Coface Seguro de Crédito México, Chubb Fianzas Monterrey, Aseguradora de Caución, and Liberty Fianzas.

The agency expects these companies to face a "challenging growth cycle, which could erode their profitability and internal capital generation" and decline their return on investments.

The other group of insurers facing the outlook downgrade include Aseguradora Insurgentes, Grupo Financiero Aserta, Aseguradora Aserta, Grupo Financiero Aserta, Plan Seguro, Compania de Seguros, and Seguros Sura.

The outlook change reflects the close linkages between their credit profiles and that of the Mexican sovereign, taking into account the insurers direct and indirect exposures to sovereign assets as well as other investments that are correlated to the sovereign.

Moody's said because of these sovereign linkages, further deterioration in the Mexican sovereign rating and/or its insurance operating environment would exert downward pressure on the companies' ratings.

"These insurers have greater sensitivity than other credits with weaker intrinsic fundamentals to a potential sovereign downgrade, because their intrinsic credit profiles are relatively strong compared to the sovereign, indicating that a sovereign downgrade will likely drag down their credit profiles," it said.

Moody's noted that Coface Seguro de Crédito Mexico's intrinsic profile is more exposed to a negative impact by the deterioration of Mexico's economic activity, given the highly cyclical nature of credit insurance. "Because we expect a deterioration in credit quality for local and foreign companies, the company will likely face losses in the short-to-medium term, underscoring its weak statutory profitability and internal capital generation."