Best Downgrades MAPFRE RE’s Ratings; Placed on Review/Negative

A.M. Best Europe – Rating Services Limited announced that “as a result of the continued negative developments regarding the euro zone sovereign debt crisis,” it has downgraded the financial strength rating to ‘A’ (Excellent) from ‘A+’ (Superior) and issuer credit rating to “a+” from “aa-“of Spain’s MAPFRE RE, Compania de Reaseguros, S.A., a key subsidiary of MAPFRE S.A., and has placed both ratings under review with negative implications. The actions are part of a number of rating and outlook changes undertaken by Best on a number of European (re)insurers.

“These rating actions were driven by both MAPFRE S.A. and MAPFRE RE’s exposure to investments in several peripheral euro zone economies, in particular Spain and Portugal,” Best explained. “This also reflects MAPFRE S.A.’s exposure to commercial property in Spain through its investment holdings.”

In an overall context Best stated that its “rating actions on MAPFRE RE and other European (re)insurers reflect their exposure to the continued deterioration of the sovereign creditworthiness of several euro zone countries and the negative economic outlook for the region.”

Best also noted that it has been “actively monitoring this crisis and released reports on related (re)insurers’ exposure in September and November of this year. The rationale for taking rating action at this point is largely attributable to the current heightened level of credit and liquidity risk for insurers operating within the euro zone countries—most notably Italy and Spain. The perceived strain on the economies of these countries and companies operating within their borders is growing rapidly with very little evidence of a solution being formulated to address near-term concerns.

“The ratings for MAPFRE Re will remain under review with negative implications while Best examines these companies’ exposure to a prolonged adverse economic environment within the euro zone.”

Best also indicated that it is particularly concerned by the exposure to “Italy and Spain’s sovereign bonds and the potential for contagion into other asset classes, particularly holdings of European bank securities.”

Best will assess the likely impact of a prolonged financial crisis and recessionary environment on these carriers’ market position and ongoing business operations. Again, as with other European insurers, Best said “upward rating pressures are unlikely at this point.

“Negative rating actions could occur if there were a worsening of risk-adjusted capitalization tied to investment losses or a deterioration of the operating environment in key territories.”

Source: A.M. Best

Topics Europe