Best Affirms MAPFRE RE’s A+ Ratings; Outlook Negative

August 17, 2010

A.M. Best Co. has affirmed the financial strength rating of ‘A+’ (Superior) and issuer credit rating of “aa-” of Spain’s MAPFRE RE, Compania de Reaseguros, S.A., but bothratings have negative outlooks.

The ratings reflect MAPFRE RE’s “integral role” within the group MAPFRE S.A., and its “stable stand-alone risk-adjusted capitalization, solid underwriting performance and strong competitive position in Spanish and Portuguese speaking markets,” said Best.

“The affirmation of the ratings also takes into account the significant progress MAPFRE SA has made reducing the group’s financial leverage. The outlook remains negative due to MAPFRE S.A.’s exposure to the Spanish economy, particularly exposure to Spanish government bonds and commercial property in Spain through its investment portfolio.”

Best characterized MAPFRE RE’s risk-adjusted capitalization as remaining strong, “despite limited earnings retention (58 percent dividend paid in 2009) and the increase in required capital for premium and reserve risk due to the company’s continuing expansion. MAPFRE S.A.’s support remains an important rating factor, reinforcing MAPFRE RE’s ability to absorb high growth in reinsurance business written for companies outside the MAPFRE group.”

The rating s report added that, although the potential for support from MAPFRE S.A. remains strong, Best believes the “consolidated risk-adjusted capitalization of the group would be significantly affected by stress scenarios in the European credit markets, particularly sovereign risk relating to the group’s portfolio of Spanish government bonds.”

Best also said that it anticipates that MAPFRE RE will “maintain its excellent underwriting record reflecting the profitable performance of its reinsurance business written for group companies and effective mitigation of its catastrophe exposure through reinsurance. In 2010 the company is likely to continue its consistent record of underwriting profitability, subject to catastrophe experience for the balance of the year, reflecting manageable exposure to earthquake losses in Chile.

“Further ahead, MAPFRE RE is likely to gradually reduce potential volatility in performance due to catastrophe exposure in Latin America through writing more business in other territories and increasing its life underwriting. MAPFRE RE’s performance through the financial crisis and economic downturn has been supported by stable investment returns.”

In addition Best pointed out that MAPFRE RE continues to “benefit from its strong business profile in Spain, Portugal and Latin America, which combined are expected to form approximately 55 percent of the gross written premium in 2010. MAPFRE RE is an integral part of MAPFRE S.A., as it operates as the internal reinsurance unit for the group. However, most of MAPFRE RE’s account will continue to be derived from third party sources (approximately 60 percent-65 percent anticipated in 2010).”

Best said it believes that MAPFRE RE is “likely to develop more third party reinsurance, particularly life business and business written from Asia, Australia and from the rest of Europe outside Spain.”

Source: A.M. Best

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