S&P Lowers Mapfre Ratings

July 5, 2007

Standard & Poor’s Ratings Services has lowered its long-term counterparty credit rating on Spain’s insurance holding company Mapfre S.A. to “A+” from “AA-.” S&P also lowered its long-term rating on the €275 million ($374.7 million) 10-year senior unsecured debt issued in 2001 by Mapfre S.A.’s predecessor holding company, Corporación Mapfre S.A., and now held by Mapfre S.A., to “A+” from “AA-.” The outlook is stable.

“The rating action reflects the Mapfre group’s growth and acquisition strategy, which is viewed as more aggressive than previously, albeit that it is more conventional relative to that of other major European insurance groups,” stated S&P credit analyst Peter McClean.

S&P explained that until now it has “”applied a nonstandard single-notch rating differential between the Mapfre group’s operating entities, which are rated ‘AA’, and the holding company, which was previously rated ‘AA-‘. This has been based on strong levels of interest coverage and debt leverage, strong diversity of earnings, and, until recently, implied support from the previous parent mutual, Mapfre Mutualidad de Seguros y Reaseguros a Prima Fija.”

However, S&P indicated that “following the demutualization of the latter entity in 2006, the Mapfre group has announced a series of acquisitions.” This change has led S&P to “believe that there is a greater tolerance of leverage, albeit still within prudential bounds, and that the current low levels of debt leverage are unlikely to be maintained.”

Nonetheless S&P’s ratings on Mapfre S.A. “continue to reflect the financial strength characteristics of the Mapfre group, which are based on its very strong operating performance, very strong competitive position in Spain and Latin America, and its management, which Standard & Poor’s considers as positive for the ratings. These factors are offset by a slight weakening of the group’s previously very strong capitalization.”

S&P also explained that the stable outlook reflects its expectation that the Mapfre group’s operating performance will remain very strong. “The group is expected to maintain its very strong competitive position by consolidating its market-leading positions in Spain and Latin America,” the report notes. S&P also said that, although it “expects capitalization to weaken slightly,” it doesn’t expect that capital adequacy will fall below the “AA” range.

In conclusion S&P said an upgrade is “unlikely until such time as the competitive position attains the levels of diversification of other major European players. Conversely, any significant deterioration in the Mapfre group’s capitalization and/or operating performance could lead to a negative rating action.”

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