Best Affirms Mapfre Re ‘A+’ Rating

May 14, 2004

A.M. Best Co. announced that it has affirmed the financial strength rating of “A+” (Superior) of Spanish reinsurer Mapfre Re, Compania de Reaseguros S.A. with a positive outlook.

The rating and outlook are the same as Best assigned to Mapfre Mutualidad de Seguros y Reaseguros, Mapfre Re’s parent (See IJ Web site May 13).

“The rating reflects Mapfre Re’s status as a core subsidiary of Mapfre Mutualidad de Seguros y Reaseguros, the ultimate parent of the Sistema Mapfre, its enhanced risk-adjusted consolidated capitalisation, strong position in the Spanish-speaking markets and improved operating performance,” said Best.

“Offsetting factors include substantial growth expectations from group and third party business (in particular in Europe and the United States) in a potentially softening market,” Best noted. “Mapfre Re is regarded as a core company to Mapfre Mutualidad, playing an integral role in the group’s strategy. The company is the main reinsurer of the majority of underwriting entities within the group.”

The reinsurance unit’s capitalization has been strengthened through a capital injection of 150 million euros ($177.5 million) from a rights issue in April 2004. Best indicated that “subject to no adverse loss experience,” it “expects Mapfre Re’s capitalisation to be further bolstered through retained earnings. Moreover, additional capital injections are planned for the next two years to support the company’s ambitious expansion plans. Volatility inherent in writing global catastrophe cover will continue to be contained through conservative use of retrocession.”

The rating agency also stressed that Mapfre Re “maintains a leading position in the Spanish market (market share of approximately 12 percent including business from group companies) and a strong presence in Latin America.” Best said it “expects the company’s strong premium growth to further accelerate in 2004 due to the planned expansion in core Spanish-speaking markets as well as Europe and the United States.” But on a cautionary note it warned that such “expansion during a softening market will require maintenance of strict underwriting policies.”

Best also indicated that it “expects the company’s conservative business model to continue ensuring profitability in line with the levels achieved in 2003. The non-life combined ratio is expected to increase in 2004 due to the need to bolster reserves from expanding business volumes, following an improvement of 5.1 percentage points to 88.2 percent in 2003. Return on equity (ROE) is expected to remain at above market average levels.”

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