-AM Best has removed from under review with negative implications and affirmed the Financial Strength Rating (FSR) of C+ (Marginal), the Long-Term Issuer Credit Rating (Long-Term ICR) of “b-” (Marginal) and the Mexico National Scale Rating of “bb.MX” (Fair) of CRABI, S.A. de C.V. (Crabi) (Mexico City, Mexico). The outlook assigned to these Credit Ratings (ratings) is negative. Concurrently, AM Best has withdrawn the ratings as the company has requested to no longer participate in AM Best’s interactive rating process.
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The ratings reflect Crabi’s balance sheet strength, which AM Best assesses as weak, as well as its marginal operating performance, limited business profile and marginal enterprise risk management (ERM).
The rating affirmations reflect the vulnerability of Crabi’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), and significant deviations in its operating performance metrics with respect to the company’s original business plan. These events also call into question the soundness and fundamentals of Crabi’s ERM program.
The negative outlooks indicate further pressure on Crabi’s ratings and the heightened execution risk of its business plan considering the uncertainty of future capital contributions to support the operation and its ability to comply with regulatory capital requirements.
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Crabi is a startup company in Mexico that is authorized to underwrite property/casualty insurance in the auto line of business, which began operations in May 2019. It is 99.9% owned by Crabi, L.P., whose sole purpose is to be an investment vehicle for Crabi, with the remainder owned by the company’s CEO, Javier Orozco. Due to the lack of audited financial statements for the holding company, certain investments are treated as capital contributions based on management’s representation.
In June 2021, Crabi’s risk-adjusted capitalization was pressured downward to a very weak level due to a delay in the expected capital infusion, coupled with the shortfall in the regulatory minimum paid capital. With this additional capital contribution of MXN 44.4 million, the company’s Best’s Capital Adequacy Ratio (BCAR) returned to strongest level as of December 2021, which is in line with the projections previously provided by the company. However, given the inherent uncertainty with respect to the timing of the next round, and the possible inability of the company to correct the shortfalls and replenish its capital base, the balance sheet of the company remains vulnerable.
As of December 2021, Crabi’s operating performance metrics stood below the projected levels due to a higher-than-projected level of claims and acquisition costs. The company is addressing these issues, but the implementation of these adjustments remains a challenge within a very competitive auto segment. Additional negative development of operating performance trends will potentially erode the already pressured capital base further.
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