S&P Affirms Spanish Insurer FREMAP ‘AA’ Ratings

May 22, 2003

Standard & Poor’s announced that, following a review of the company, it has affirmed its ‘AA’ long-term counterparty credit and insurer financial strength ratings on Spanish social security mutual FREMAP Mutua de Accidentes de Trabajo y Enfermedades Profesionales de la Seguridad Social (FREMAP), with a stable outlook.

“The ratings reflect FREMAP’s extremely strong capitalization, very strong operating performance, strong business position, and very proactive management,” said S&P credit analyst Peter McClean. “These factors are offset by a rigid legislative framework that constrains further product diversification and limits the company’s earnings potential.”

S&P noted that “FREMAP was established in 1933 as a mutual insurance company covering work-related accidents and illnesses. Today, it is the market leader in Spain. The company has full control over its administration expenses, but the level of contributions and the minimum charge per hour for risk management services (RMS) are set by the Ministry of Labor.”

It “expects FREMAP to continue to be the leader in the Spanish social security market for the insurance of work-related accidents and non-work-related illnesses,” and to maintain its current 23% market share, “as well as increasing its market penetration in the provision of related RMS, with the volume of these contracts expected to increase by about 14% in 2003.”

S&P added that “FREMAP’s capital adequacy is expected to remain extremely strong, at the ‘AAA’ level according to Standard & Poor’s risk-based capital model, and the capital adequacy ratio is not expected to fall significantly below 300%. Operating performance is expected to remain very strong, with the combined ratio falling below its current level of 80% as the results of the non-work-related illnesses portfolio improve following an increase in tariffs.”

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