S&P Global Ratings has upgraded the long-term issuer credit and financial strength ratings of Mapfre Re from ‘A’ to ‘A+’, based on improved underwriting earnings diversification.
The rating agency also raised the long-term issuer credit rating on parent company Mapfre S.A from ‘BBB+’ to ‘A-‘, and assigned a stable outlook to both sets of ratings.
Analysts explained that the ratings upgrade reflects the implementation of Mapfre’s strategic plan, which has enhanced underlying profitability for its underperforming lines, mainly in Brazil and the US.
Despite a decline in the group’s net results by €65.9 million to €462.9 million so far in 2019, S&P believes that underlying profits have improved because Mapfre has taken advantage of stronger diversification of earnings.
S&P also anticipates that the group will continue to enforce profitability in underperforming lines and countries, generating an annual net profit of about €700 million over the next two years, supported by a group combined ratio at around 97% and a return on equity of about 8%.
Mapfre is the second-largest insurer in the Spanish market in terms of premiums, and holds leading positions in both property and casualty (P&C) and life insurance. It also ranks at number two in Brazilian P&C through its joint venture with Banco do Brasil.
Mapfre Group generated €2.4 billion from external reinsurance in 2018 (65% of its gross inward reinsurance premiums), accounting for over 10% of the group’s business and providing a significant source of profit diversification.
However, compared with higher-rated peers, Mapfre is less diversified in life insurance, and a larger share of its business is generated in emerging markets, which are potentially more volatile than mature markets.
S&P said that its stable outlook reflects an expectation that Mapfre will remain focused on profitable growth in 2020-2022, maintaining a leading position in its main markets, without earnings being impacted by further material one-off losses.
However, it warned that its ratings could be downgraded over the next two years if capital declines sustainably below the ‘A’ rating threshold, potentially as a result of severe combined global and domestic financial market stress.
On the other hand, further positive rating action is possible if S&P were to see a substantial enhancement in Mapfre’s capital position through higher earnings contribution.
