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TEXT-Fitch affirms Mapfre's IFS at 'BBB'; revises outlook to stable
January 21, 2013 / 12:51 PM / in 5 years

TEXT-Fitch affirms Mapfre's IFS at 'BBB'; revises outlook to stable

(The following statement was released by the rating agency)

Jan 21 - Fitch Ratings has affirmed Mapfre SA’s (Mapfre) Issuer Default Rating (IDR) at ‘BBB-’ and its core operating subsidiaries’ Insurer Financial Strength (IFS) rating at ‘BBB’. The agency has revised the Outlook on the ratings to Stable from Negative. A full list of rating actions is below.

The Stable Outlook follows Fitch’s reassessment of the degree of sensitivity of Mapfre’ capital adequacy to the severe distress scenario of a haircut of 25% of its holdings of Spanish government and bank debt. Such a scenario would erode around 25% of Mapfre’s shareholders’ funds (including minorities). Fitch considers that even after such stress, Mapfre’s capital base would remain appropriate for its current rating. Fitch believes that Mapfre would be better able to withstand credit and other losses under this scenario than a year ago when Fitch undertook a series of stress tests on its European rated portfolio. This improvement follows Mapfre’s strengthened capital adequacy as at 9M12.

Fitch also expects that Mapfre’s increasing geographical diversification in countries with higher credit profiles than Spain, in particular in Latin America and the US, will to a significant extent offset the negative impact on earnings and growth of a potential further downturn of the Spanish economy. At 9M12, around half of the company’s net income was derived from earnings outside Spain.

The affirmation reflects Mapfre’s strong underwriting performance, its solid capital adequacy and its strong international franchise, notably in Latin America. Offsetting this is the linkage between Mapfre’s ratings and the Spanish sovereign rating (‘BBB’/Negative), the quality of capital being negatively affected by the amount of goodwill and commercial real estate on balance sheet, and the increase in financial debt leverage following the issuance of EUR1bn senior debt in November 2012.

Fitch expects Mapfre to maintain strong underwriting performance in 2012 and 2013, notwithstanding the difficult operating environment. Mapfre has reported profitable non-life underwriting results for nearly a decade (average five-year combined ratio at 94.4%). The group reported combined ratios of 96.9% and 95.3% in 2011 and 9M12, respectively. In the life business, the new business margin improved slightly in 2011, reflecting a higher-margin sales mix.

Fitch’s risk-adjusted capital adequacy assessment indicates that Mapfre holds has a level of capital that is more than commensurate with its current rating category. However, the quality of capital is negatively affected by the amount of goodwill and commercial real estate on its balance sheet. Net premium written to equity was a strong 1x at 9M12 (2011: 1.3x). Fitch expects Mapfre to maintain a strong balance sheet over the medium term, without significant depletion of capital to fund inorganic growth.

Despite Mapfre performing better on the severe distress scenario test described above, Fitch still view Mapfre’s IFS ratings as being constrained by Spain’s Long-term IDR of ‘BBB’ and Mapfre SA’s Long-term IDR is one notch below the operating entities’ IFS rating (it would be two notches according to standard notching).

Mapfre issued EUR1bn senior notes on November 2012 and will pay a 5.125% coupon until maturity date in 2015. The proceeds at least temporarily improved Mapfre’s liquidity position. However, the company has a bank facility maturing in May 2013, and Fitch believes that Mapfre could use part of the proceeds to repay this loan.

Fitch’s calculated financial leverage ratio (FLR) increased from 27% at end-2011 to an estimated 33% on a pro-forma basis at 9M12 after this issuance. This also reduced Mapfre’s run-rate of coverage of interest expenses, which Fitch estimates at 14.7x on a pro-forma basis at 9M12 (2011: 20.1x). However, Fitch believes the increased FLR is temporary, on the assumption that the proceeds will be used to refinance maturing bank facilities.


Key rating triggers that may cause Fitch to consider a downgrade of Mapfre’s ratings include:

--A downgrade of the Spanish sovereign rating (currently ‘BBB’/Negative), although Mapfre’s IFS rating is not directly linked to it

--Exposure to the Spanish insurance market or sovereign debt resulting in underwriting or investment losses beyond Fitch’s current expectations

Key rating triggers for an upgrade of Mapfre’s ratings include:

-- Mapfre maintaining strong credit fundamentals as measured by Solvency I ratio consistently above 200% (2011: 287%) and FLR below 30%

--The eurozone debt crisis stabilising and Spain’s rating being upgraded

-- Mapfre achieving further geographical diversification in countries with higher credit profiles than Spain. This could result in Mapfre reducing its exposure to Spanish debt to below 20% of group investments (currently estimated at 35%)

The rating actions are as follows:

Mapfre Familiar

Mapfre Global Risks Cia De Seguros Y Reaseguos

Mapfre Vida SA De Seguros Y Reaseguros

IFS affirmed at ‘BBB’; Outlook revised to Stable from Negative

Mapfre Re Compania De Reaseguros S.A

IFS affirmed at ‘BBB’; Outlook revised to Stable from Negative

Mapfre SA

Long-term IDR affirmed at ‘BBB-'; Outlook revised to Stable from Negative

EUR700m 5.91% subordinated debt due 2037 with step-up in 2017 affirmed at ‘BB-’

EUR1bn 5.125% senior unsecured debt due 2015 affirmed at ‘BB+'

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