Surety industry losses widen to US$14mn

Losses at Mexico's surety industry widened 171% to 158mn pesos (US$14mn today) during the third quarter, according to statistics published by the regulator (CNSF). "The sector suffered large claims from prior years that were paid [this year]," S&P analyst Jaime Carreno told BNamericas. The industry had direct premiums of 2.5bn pesos for the third quarter of 2003, a 12.9% increase compared to the previous year. Total sector premiums for the quarter were 2.59bn pesos, of which 98.8% corresponded to direct premiums and 1.2% to reinsurance payments. "There is also a tendency of falling premiums in the sector and with luck they will reach the same level of previous years," he said, predicting premiums would hit 3bn pesos this year, up just 7% from 2000 after several years of sharp declines. The industry's combined ratio, the ratio of claims and expenses to premium income, was 97.6% for the quarter. Broken down by category, fidelity bond premiums were up 13.9% year-over-year at 166mn pesos while general surety premiums grew 19.3% to 1.84bn pesos. Fidelity represented 6.6% of total sector premiums for the quarter and general surety premiums 73.9%. In the losing category were judicial and credit surety premiums, which fell 7.1% and 6.3% respectively. Judicial surety premiums totaled 239mn pesos and accounted for 9.6% of total sector premiums, while credit surety premiums totaled 248mn pesos and represented 9.9% of total premiums. Sector assets grew 4.2% to 7.53bn pesos. About 69%, some 5.19bn pesos, was invested in the financial markets, a 12.8% increase from the same period last year. Reserves grew 10.6% to 3.01bn pesos and were equivalent to 40.7% of assets. The industry's capital was up 10.8% at 2.61bn pesos at the end of the quarter. At the end of the third quarter there were 14 surety companies operating in Mexico, five of which were owned by financial groups and three controlled by foreign financial institutions. Five companies accounted for 85.5% of total direct premiums: Afianzadora Insurgentes (43.8%), Fianzas Monterrey (19.0%), Fianzas Comercial América (9.8%), Fianzas Guardiana Inbursa (8.5%) and Afianzadora Sofimex (4.4%). "We expect strong consolidation in the sector next year," Carreno said. "Outside of the four big companies the others only have enough capital to maintain their operations, but not enough to grow." In an industry that has grown a scant 5% a year in the last five years, Carreno expected the top four or five companies would gain scale through portfolio acquisitions from smaller players.