Best Affirms Mapfre Mutualidad ‘A+’, ‘aa-‘ Ratings

May 13, 2004

A.M. Best Co. announced that it has affirmed the financial strength rating of “A+” (Superior) of Spain’s Mapfre Mutualidad de Seguros y Reaseguros (Mapfre Mutualidad), and its “aa-” rating on the 275 million euro 6.02 percent senior debt due 2011 of Corporacion Mapfre, the group’s stock company and subsidiary of Mapfre Mutualidad. The rating outlook remains positive.

“The rating is based on Mapfre Mutualidad’s leading business position in Spain and Latin America, very strong risk-adjusted consolidated capitalisation and exceptional operating performance,” said Best. Offsetting factors are the ongoing integration of Musini (acquired in 2003) into Corporacion Mapfre and the extensive growth in global operations during a difficult part of the market cycle.”

Assessing the group’s leading business position, Best pointed out that “Mapfre Mutualidad is the ultimate parent of the Mapfre group (commercially referred to as Sistema Mapfre) and is the leading insurance group in Spain and one of the leading insurers in Latin America.” It is Spain’s foremost motor insurance company, and its subsidiaries operate in other lines, “sharing a multi-channel distribution network enhanced by the strategic alliance with the Spanish bank, Caja Madrid.”

Best said, however, that it “believes that Sistema Mapfre’s strategy of diversifying its risk profile through expansion in subsidiaries poses strong challenges, especially as it is attempted during a difficult period of the insurance cycle and while the company still integrates the portfolio acquired from Musini.”

The rating agency expects Mapfre Mutualidad’s risk adjusted capitalization “to remain very strong as the company continues to enhance its consolidated capital position through the retention of earnings in line with the projected business growth. Prospectively, the company’s consolidated capital base is expected to increase through the minority interest contributions from the proceeds of a rights issue by Corporacion Mapfre in April 2004 amounting to 500.5 million euros ($594.5 million).”

The group reported consolidated net profits of 446.4 million euros ($530 million) in 2003 with all underwriting entities returning a net profit. “Capital efficiency is very strong with the company returning consistently above 20 percent on average equity,” said Best.

“The non-life combined ratio improved further in 2003 by 4.2 percentage points to 88.8 percent as a result of both enhanced selectivity on risks and reduced expenses,” the bulletin continued. “Life technical income has improved by 50 percent to 109.1 million euros ($129.6 million), primarily due to improved investment performance.”

Best said it “expects both underwriting and operating performance to remain exceptional in 2004.”

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