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Fitch Affirms Mapfre Sigorta at IFS 'AA(tur)'; Outlook Stable
December 15, 2016 / 10:14 AM / a year ago

Fitch Affirms Mapfre Sigorta at IFS 'AA(tur)'; Outlook Stable

(The following statement was released by the rating agency) LONDON, December 15 (Fitch) Fitch Ratings has affirmed Turkey-based Mapfre Sigorta's National Insurer Financial Strength (IFS) rating at 'AA(tur)'. The Outlook is Stable. KEY RATING DRIVERS The rating reflects Mapfre Sigorta's strong position in the Turkish non-life insurance market, solid underwriting performance, a prudent investment policy, and Fitch's view of its importance to its ultimate parent, Mapfre SA (Issuer Default Rating BBB+/Stable). These factors are offset by the competitive pricing environment of the Turkish non-life insurance market and risks associated with Mapfre Sigorta's rapid growth over the recent years relative to peers. Mapfre Sigorta's rating benefits from a single-notch uplift for Mapfre SA's ownership and for the parent's expertise in corporate governance, operational support and risk management. Fitch believes that capital support would also be provided to Mapfre Sigorta by the parent, should it be required. Fitch views Mapfre Sigorta's capital as adequate for its rating. Under the Turkish solvency regime, which uses a risk-based capital measure, Mapfre Sigorta's regulatory solvency ratio improved to 122% in 3Q16 (YE15: 102%). This was due to an increase in equity as a result of higher retained earnings and lower charges for excessive growth. Mapfre Sigorta's regulatory solvency ratio remained close to minimum in the last two years due to rapid premium growth. Mapfre Sigorta maintained its profitability in nine months to September 2016 and reported net income of TRY133m (3Q15: TRY15m). Overall profitability was supported by strong underwriting performance improved as a result of premium rate increases in motor third party liability line. Changes in regulation on the calculation of outstanding claims reserves in January 2015 and an increase in the minimum wage by 30% in January 2016 resulted in a significant reserve gap in the Turkish non-life insurance sector. Given the significant amount of additional reserves required, the regulator has allowed insurers to book additional incurred but not reported (IBNR) reserves gradually over a period of five years and use discounting of the outstanding claims reserves. Mapfre Sigorta estimates that it will need additional TRY126m of IBNR reserves (as at 3Q16) to be booked for motor third party liability line by 2019. Mapfre Sigorta's motor book grew strongly during 2015 and 2016, driven by increasing market premium rates and the exit of certain international competitors from the Turkish motor market. Fitch remains cautious regarding Mapfre Sigorta's recent expansion across motor lines as we believe there may be additional underwriting, pricing and reserving risks associated with rapid growth. RATING SENSITIVITIES Key rating drivers that could lead to a downgrade include a decline in the regulatory solvency ratio to below 100% over a sustained period, deterioration in underwriting profitability (with the combined ratio above 110% for an extended period), or significant deterioration in Mapfre Sigorta's competitive positioning in Turkey (decline in market share to below 4%). A decline in Mapfre Sigorta's importance to Mapfre SA could also lead to a downgrade. An upgrade is unlikely in the near term, given Mapfre Sigorta's high rating on the Turkish national scale. Its small contribution to Mapfre SA precludes an increase in the rating uplift. 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: Additional information is available at Applicable Criteria Insurance Rating Methodology (pub. 15 Sep 2016) here Additional Disclosures Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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