Best Affirms Ratings of Mapfre Mutualidad and Affiliates

June 30, 2005

A.M. Best Co. announced that it has affirmed the financial strength rating of “A+” (Superior) of the Spanish insurance group Mapfre Mutualidad de Seguros y Reaseguros, the ultimate parent of the Mapfre Group (commercially referred to as Sistema Mapfre). The outlook remains positive.

At the same time, Best affirmed the issuer credit rating of “aa-” of Corporacion Mapfre (Corporacion), Mapfre Mutualidad’s publicly listed non-operating holding company, and the “aa-” rating on the 275 million euro ($332 million) 6.02 percent senior debt due 2011 issued by Corporacion. Best revised the outlook for these two ratings to stable from positive, “reflecting the uncertainty related to Sistema Mapfre’s repeated indications of its willingness to consider potential acquisition opportunities.”

Best said: “The ratings reflect Mapfre group’s leading business position in Spain and Latin America, very strong risk-adjusted consolidated capitalization and excellent operating performance.” In separate bulletins Best also affirmed its ratings on the Mapfre group’s principle subsidiaries.

In discussing the group’s leading business position, Best noted: “Mapfre Mutualidad is the leading motor insurer in Spain. Sistema Mapfre, via numerous subsidiaries, is the domestic leading insurance group, and it is also a leader in many Latin American countries. In 2004, net premiums grew above market average in most business lines, with the total consolidated premiums increasing by 15 percent. In 2005, premiums are likely to continue to grow—albeit at a reduced rate of around 10 percent—reflecting the non-recurrent effect from Musini and a stagnant Spanish savings life market dominated by a climate of low interest rates.

“Sistema Mapfre benefits from a multi-channel distribution network, and the strength of its domestic agent network is excellent. However, some integration challenges are likely to arise as Sistema Mapfre creates “Red Mapfre,” an umbrella unit aimed to consolidate all direct channels in Spain. Having successfully integrated Musini and consolidated its position in Latin America, Sistema Mapfre’s long-term goal is to establish an international holding company to ease growth abroad.”

Best also indicated that it “expects Mapfre Mutualidad’s consolidated risk-adjusted capitalization to remain very strong through the retention of earnings despite its projected business growth. The successful rights issue of 500.5 million euros ($604 million) by Corporacion in April 2004 is evidence of the group’s excellent financial flexibility.”

The Group is also enjoying record earnings. “Mapfre Mutualidad reported a strong 23 percent increase in consolidated net profits (549.6 million euros [$663.4 million] at year-end 2004 with all underwriting entities returning a net profit,” Best continued. “Group capital efficiency is very strong as indicated by a 20 percent consolidated return on equity. The combined ratio remained excellent at 91.5 percent, which was 1.1 percentage points lower than in 2003, reflecting Mapfre’s enhanced risk selection and reduced expenses.

“Life technical results decreased slightly to 104.9 million euros [$126.6 million] despite a premium growth above market average due to increased surrenders.” Best said it “expects both underwriting and overall performance to remain excellent with an increase in consolidated net profits in excess of 10 percent during in 2005.”


Best also affirmed the financial strength rating of “A+” (Superior) and upgraded the issuer credit rating to “aa” from “aa-” of MAPFRE RE, Compania de Reaseguros S.A. and gave both ratings a positive outlook “in line with the ultimate parent company, Mapfre Mutualidad de Seguros y Reaseguros.” The ratings recognize full enhancement from Mapfre Mutualidad, as well as Mapfre Re’s excellent stand-alone risk-adjusted capitalization, its leading position in the Spanish-speaking markets and strong operating performance,” the announcement continued.

Best gave details on Mapfre Re’s excellent risk-adjusted capitalization, which it expects “to be maintained at a level supportive of the current rating with the effect of future planned growth offset by retained earnings of approximately 20 million euros [$$24.1 million].” It also has 75 million euros ($90 million) in additional capital to be used if needed.

“Mapfre Re has a leading position in the Spanish-speaking markets and plays an integral role in the Mapfre group’s strategy as it is the primary reinsurer of the Mapfre group of companies, which accounts for approximately 36 percent of Mapfre Re’s total premium,” the bulletin continued. Best said it “expects gross premiums to increase by approximately 20 percent to 1.35 billion euros ($1.637 billion) at year-end 2005, “following the strong increase of 31 percent to 1.1 billion euros ($1.33 billion) in 2004, reflecting its continued international expansion (particularly in Europe and Latin America), as well as growth in group business.”

Mapfre Empresas Compania de Seguros y Reaseguros S.A.

Best also analyzed another subsidiary, Mapfre Empresas Compania de Seguros y Reaseguros S.A. (Mapfre Empresas), assigning it a financial strength rating of “A” with a stable outlook.

“The rating reflects the company’s strong risk-based capitalization, leading market position in the Spanish industrial risks market and the strong support from its ultimate parent, Mapfre Mutualidad de Seguros y Reaseguros (Mapfre Mutualidad),” said Best. “Offsetting factors are the company’s lack of geographical diversification and remaining integration risks amongst its constituent entities.”

Mapfre Empresas is a new venture for the group. Best noted that it “was created with accounting effect from 1 January 2005 through the consolidation of Musini, Mapfre Industrial and Mapfre Caucion y Credito. The company is the leading Spanish industrial risks insurer with an estimated 20 percent market share. Mapfre Empresas generates 11 percent of direct written premiums and 9 percent of after-tax profits of the Mapfre group.” Best said it “expects consolidated premium income in excess of 1.1 billion euros ($1.327 billion) in 2005—approximately 10 percent growth from the previous year.”

The rating agnency also noted that the Mapfre Empresas’ “plans to expand its geographical coverage, particularly in Western Europe, are essential for the long-term viability of the company, as its main international competitors possess a greater ability to service multi-national accounts.” Best sees premiums growing at around 10 percent with a strong operating performance.

Mapfre Asistencia Compania Internacional de Seguros y Reaseguros SA

Finally Best analyzed Mapfre Asistencia Compania Internacional de Seguros y Reaseguros SA, affirming its financial strength rating of “A+” (Superior) with a stable outlook. The rating of Mapfre Asistencia again “reflects its importance to its ultimate parent,” Mapfre Mutualidad, “its strong capitalization, expanding business profile and good financial performance,” said Best. “The main offsetting factor is the still significant (although reducing) exposure to the Latin American markets.”

Best said it “regards Mapfre Asistencia’s risk-adjusted capitalization as strong despite the premium growth anticipated for 2005 (continuing the trend shown in recent years), the main driver being the company’s ability to retain robust earnings.” In addition, Best noted “the company benefits from strong parental support, as evidenced by various capital injections in recent years.”

Best also expects Mapfre Asistencia’s premium income “to grow in excess of 30 percent in 2005, below the exceptional 44 percent experienced last year, mainly driven by pecuniary losses in the United Kingdom. Business expansion in 2005 is likely to be underpinned by new contracts in Continental Europe, expansion of the travel division in the United Kingdom, the opening of nursing homes for the elderly in Spain and the start of business activities in China.”

The rating agency also indicated that it “expects the company’s underwriting performance to remain robust and investment returns to continue being impacted by the volatility in Latin American currencies. Despite the trend to reduce the exposure to Latin America, almost 30 percent of the premium income was generated in that region in 2004, delivering pre-tax profits at similar levels as in the previous year.

“Mapfre Asistencia has shown in recent years that, despite its high premium income volatility due to the business to business nature of its operations and the exposure to currency risk, the company’s underwriting procedures are capable of delivering resilient and stable profits.”

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