AM Best has assigned a Financial Strength Rating of B++ (Good), a Long-Term Issuer Credit Rating of “bbb” (Good) and the Mexico National Scale Rating of “aa.MX” (Superior) to Fianzas Avanza S.A de C.V. (Fianzas Avanza) (Mexico City, Mexico). The outlook assigned to these Credit Ratings (ratings) is stable.

The ratings reflect Fianzas Avanza’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.

The ratings of Fianzas Avanza also reflect its strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), adequate reinsurance program and liquid investment strategy. Partially offsetting these positive rating factors are the company’s historic volatile performance, which has been stabilized by change in strategy, the intense competition in Mexico’s surety bond segment and the challenging economic environment.

The company is Mexico-domiciled and began operations in 2017, initially underwriting fidelity. Since 2022, Fianzas Avanza’s business portfolio has been concentrated almost completely in administrative surety, which is consistent with other market participants. Based on gross premiums written, the company has a small share of Mexico’s surety market. In addition, due to Fianzas Avanza’s monoline nature, its business profile is considered limited.

Fianzas Avanza’s risk-adjusted capitalization stands at the strongest level and has been partially sustained through capital injections in the past. The company’s overall profitability was historically driven by financial products, contained claims and reinsurance commissions, which offset its high operating expense structure. However, the company has increased risk retention away from fronting products, supported by an established sales department that bolstered growth, and enhanced reinsurance structure placed with highly rated counterparties. As a result, Fianzas Avanza’s underwriting performance reflected premiums sufficiency in 2023, characterized by a 58.7% combined ratio, which is a material improvement from its prior five-year weighted average of 339.3%. Additionally, the company posted a net income of MXN 18.8 million during this period. Looking forward, AM Best expects the company to sustain this operating performance trend.

Positive rating actions could occur if the company is able to maintain its current improving trend in profitability and as a consequence further strengthen its capital base. Negative rating actions could occur if underwriting performance deteriorates substantially or if there is a significant increase in business risk, as a result of a high concentration in the construction sector or as a result of uncertainty with regard to the government's spending on infrastructure, which could impact the growth of the surety market.

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