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June 27 (The following statement was released by the rating agency)
Fitch Ratings has affirmed Mapfre Genel Sigorta's (MGS) National Insurer Financial Strength (IFS) rating at 'AA(tur)'. The Outlook is Stable.
The rating reflects MGS's strong position in the Turkish non-life insurance market, its solid underwriting performance, adequate capitalisation and prudent asset allocation, and Fitch's view of MGS's importance to its ultimate parent, Mapfre SA (BBB/Stable). The rating also reflects competitive pricing in the Turkish non-life insurance market and potential risks, in Fitch's opinion, associated with MGS's rapid growth in recent years relative to peers.
KEY RATING DRIVERS
MGS has a 7% share of the Turkish non-life insurance market (end-2013). The company reported a net profit of TRY78m in 2013. Underwriting performance remains supportive of the rating, with a combined ratio of 98% at end-2013. Fitch views MGS's asset allocation as prudent, with most of the assets in cash and cash equivalents or in highly rated Turkish treasury and corporate bonds. MGS's gross written premiums (GWP) increased 53% yoy to TRY1,353m in 2013, driven by a combination of hardening premium rates across the market, an expansion of MGS's distribution and the retreat of some competitors in the face of fierce market competition. In Fitch's opinion, there may be additional underwriting, pricing and reserving risks associated with such rapid growth, and any signs of adverse trends in MGS's underwriting performance may lead to negative rating action.
MGS's regulatory solvency ratio temporarily dipped to 99% at end-2013, below the required minimum of 100%, as the amount of business written briefly exceeded the availability of capital needed to support it under regulatory requirements. At end-1Q14, the ratio was only 101% but Fitch expects MGS's capitalisation to remain above Turkish regulatory requirements in the future. Moreover, Fitch considers MGS's capital as adequate for its rating as the Turkish solvency regime uses a risk-based capital measure that is much more onerous than a typical Solvency I calculation. MSG's capital position, when viewed on a Solvency I basis, is supportive of the rating.
The rating benefits from Mapfre SA's ownership of MGS, as reflected in a two-notch uplift from its standalone profile. Fitch believes that MGS benefits from Mapfre SA's expertise in corporate governance, operational support and risk management, and that capital support to MGS would be provided by the parent, if needed.
Key rating drivers that could lead to a downgrade include deterioration in underwriting profitability (with the combined ratio above 100% for an extended period), a decline in regulatory solvency ratio to below 100%, or a significant deterioration in MGS's competitive positioning in Turkey (decline in market share to below 4%). A decline in Fitch's assessment of MSG's importance to Mapfre SA could also lead to a downgrade.
An upgrade is unlikely in the near term, given MGS's high rating on the Turkish national rating scale and given that its small contribution to Mapfre SA precludes an increase in the rating uplift from its standalone profile.