Best Affirms MAPFRE RE ‘A+’ Ratings; Outlook Remains Negative

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘A+’ (Superior) and issuer credit rating of “aa-” of Spain’s MAPFRE RE, Compania de Reaseguros, S.A. However, Best’s outlook on both ratings remains negative.

The ratings reflect MAPFRE RE’s “integral role within MAPFRE S.A. (the group), its strong although declining stand-alone risk-adjusted capitalization, resilient underwriting performance and its strong competitive position in the Spanish and Portuguese speaking markets,” Best explained.

The rating agency also explained that the “outlook remains negative due to both MAPFRE S.A. and MAPFRE RE’s exposures to investments in several peripheral Euro-zone economies, in particular Spain and Portugal.”

MAPFRE RE’s risk-adjusted capitalization “remains above the minimum required for its stand-alone ratings, despite historical high dividend payout ratios and recent unrealized investment losses on sovereign debt instruments,” Best continued.
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“Required capital for premium and reserve risk also has increased materially due to the company’s continuing expansion and sharp increments in retrocession recoverables following two years of catastrophe losses (specifically the Chile, New Zealand and Japan earthquakes). MAPFRE S.A.’s support remains an important rating factor, reinforcing MAPFRE RE’s ability to absorb high growth in reinsurance business written for companies outside the MAPFRE group.”

In addition Best indicated that “although the potential for support from MAPFRE S.A. remains strong,” Best believes the “consolidated risk-adjusted capitalization of the group would be significantly affected by stress scenarios in the European credit markets.”

Best added that it “anticipates that MAPFRE RE will maintain its excellent underwriting record reflecting the profitable performance of its reinsurance business written for group companies and the effective mitigation of its catastrophe exposure through retrocession protection.

“In 2011, the company is likely to remain marginally profitable in its net underwriting account, subject to catastrophe experience for the balance of the year. Further ahead, MAPFRE RE is likely to gradually reduce potential volatility in performance due to catastrophe exposure through the expansion of other lines of business, such as its life, health and accident books.

“MAPFRE RE continues to benefit from its strong business profile in Spain, Portugal and Latin America, which combined are expected to form approximately 51 percent of the gross written premiums in 2011. MAPFRE RE is an integral part of MAPFRE S.A., as it operates as the internal reinsurance unit for the group. However, most of MAPFRE RE’s account will continue to be derived from third party sources (approximately 60 percent-65 percent anticipated in 2011).

Source: A.M. Best

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