June 7, 2017 / 1:11 PM / 3 years ago

Fitch Upgrades Mapfre SA to IDR 'A-'; Affirms at IFS 'A-'

(The following statement was released by the rating agency) LONDON, June 07 (Fitch) Fitch Ratings has affirmed Spanish insurer Mapfre SA's (Mapfre) core operating subsidiaries' Insurer Financial Strength (IFS) Ratings at 'A-' and upgraded Mapfre's Issuer Default Rating (IDR) to 'A-' from 'BBB+'. The Outlooks are Stable. A full list of rating actions is at the end of this commentary. The IDR upgrade of Mapfre, the holding company of the group, follows the upgrade of Mapfre's unconstrained IFS assessment to 'A+' from 'A'. The holding company's IDR is notched down twice from the unconstrained IFS assessment of 'A+'. Fitch continues to apply a sovereign constraint of 'A-', meaning that Mapfre's IFS ratings are capped at 'A-'. Fitch has also assigned a rating of 'BBB-' to Mapfre's EUR600 million subordinated bond issued in March 2017. The notes are rated three notches below Mapfre's IDR of 'A-' to reflect their subordination (two notches) and moderate risk of non-performance (one notch), in line with Fitch's notching criteria. KEY RATING DRIVERS The upgrade of Mapfre's unconstrained IFS to 'A+' from 'A' reflects the group's strong and resilient earnings and solid capital position. However, Mapfre's exposure to sovereign debt is reflected in the sovereign constraint of 'A-' being applied to Mapfre's ratings, one notch higher than the sovereign rating of Spain (BBB+/Stable) due to international diversification of Mapfre's earnings. Mapfre is substantially exposed to the Spanish economy as around 60% of its operating profits originate from Spain. Mapfre has consistently demonstrated resilient operating performance despite the downturn in Spain during the financial crisis and the most recent recession in Brazil. The group reported a combined ratio of 97.4% in 2016 (2015: 98.6%). The improvement in the combined ratio reflects improved underwriting discipline and cost-saving initiatives in Mapfre's core markets. Mapfre's five-year average combined ratio is 96.7% and its target combined ratio is unchanged at 96% or less. Fitch expects the group to maintain robust underwriting performance. Fitch assesses Mapfre as being strongly capitalised, based on a 'Strong' score from Fitch's Prism Factor Based Model (FBM). Shareholders' funds increased 6% to EUR9.1 billion at end-2016, supported by strong retained earnings and appreciation of main currencies. The group's Solvency II ratio was also strong at 210% at end-2016 (2015: 198%). Mapfre's financial leverage ratio of 15% is low compared with peers and is a positive rating factor. Mapfre's ratings are heavily influenced by the group's exposure to Spanish sovereign debt (EUR17 billion at end-2016, 1.5x shareholders' funds). This holding represents a large concentration risk and a potential source of volatility for capital adequacy. However, based on the results of scenario tests, Fitch believes that Mapfre's capital position is resilient against potential stress from the substantial exposure to Spanish sovereign debt. The ratings also reflect Mapfre's strong franchise and access to distribution in Spain and Latin America, particularly Brazil. Mapfre is a leader in the non-life insurance segment in Spain with a 14.6% market share and has strong positions in Spanish life insurance with a 6.3% market share and Latin American non-life market with a share of 8.2% in 2015. This makes it the 10th largest European and the third-largest Latin American insurance group. RATING SENSITIVITIES Mapfre's ratings could be downgraded if exposure to the core insurance markets or sovereign debt results in losses with a material impact on the group's capitalisation. Mapfre's ratings could also be downgraded if the Spanish sovereign is downgraded. Factors that could trigger an upgrade include an upgrade of Spain's sovereign rating, providing that Mapfre maintains strong earnings and capitalisation. FULL LIST OF RATING ACTIONS Mapfre SA Long-Term IDR upgraded to 'A-' from 'BBB+'; Outlook Stable EUR1,000 million senior debt upgraded to 'BBB+' from 'BBB' EUR700 million 5.921% subordinated debt due 2037 with step-up in 2017 upgraded to 'BBB' from 'BBB-' EUR600 million 4.375% subordinated debt due 2047 assigned a long-term rating of 'BBB-' The IFS Ratings for the following entities have been affirmed at 'A-'/Stable: Mapfre Espana Compania de Seguros y Reaseguros S.A. Mapfre Global Risks S.A. Mapfre Vida S.A. de Seguros y Reaseguros Mapfre Re Compania de Reaseguros S.A. Contact: Primary Analyst Ekaterina Ishchenko Associate Director +44 20 3530 1532 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Harish Gohil Managing Director +44 20 3530 1257 Committee Chairperson Chris Waterman Managing Director +44 20 3530 1168 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com; Pilar Perez, Barcelona, Tel: +34 93 323 8414, Email: pilar.perez@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Insurance Rating Methodology (pub. 26 Apr 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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