Spain’s MAPFRE to Change Corporate Structure, Expand; S&P Comments

June 1, 2006

Spain’s largest domestic insurance group, Sistema Mapfre, announced a major structural reorganization, which will eventually result in all of the Group’s activities being concentrated in its publicly traded entity Corporacion Mapfre, which will subsequently be renamed Mapfre S.A.

Commenting on the proposed restructuring, Standard & Poor’s Ratings Services indicated that it’s unlikely to affect the Group’s ratings and outlook. Sistema Mapfre’s principal operating entity and main shareholder is currently Mapfre Mutualidad de Seguros y Reaseguros a Prima Fija (rated “AA/stable” by S&P). Subject to regulatory and other approvals, it will be de-mutualized, and its activities will be integrated with those of Corporacion Mapfre (rated “AA- /stable” by S&P).

“Inherent in this transaction is the transfer to Corporación Mapfre S.A. (which will be renamed Mapfre S.A.) of the operating units of the parent mutual, Mapfre Mutualidad, and the eventual dissolution of the latter company, involving a return of capital to mutual policyholders, either in cash or via shares in the future Mapfre S.A.,” said S&P.

The rating agency also indicated it “considers that the proposed reorganization represents a welcome clarification of Sistema Mapfre’s group structure. Nevertheless, while recognizing the enhanced operational efficiency and access to new capital, the impact on the group’s overall capitalization is likely to be minimal, and the impact on the ratings is expected to be neutral.”

The Group’s bulletin, which set June 15 as the date for a meeting to approve the changes, noted that the new corporate structure will allow MAPFRE “to continue expanding its activities and its international presence, with the aim of becoming one of the leading insurance companies in Europe and in the world.”

The bulletin also noted that following the restructuring FUNDACIÓN MAPFRE, a charitable trust, will have majority control of the listed holding company. It also stated that there will be “no special gain for any person employed by MAPFRE (Directors, Managers and Employees), as has been established in the corporate by-laws for the past fifty years.”

The announcement indicated that “by grouping all of MAPFRE’s activities and subsidiaries under CORPORACIÓN MAPFRE (future MAPFRE S.A.), the financial flexibility of the Group will be significantly increased, opening new opportunities for business expansion, accelerating its growth and allowing it to pursue new projects and acquisitions so as to increase its size in Spain and in other markets where it operates and to acquire a significant presence in Europe, the U.S. and the Far East.”

Further advantages anticipated from the restructuring were listed as follows:
• Its future independence – being controlled by FUNDACIÓN MAPFRE -, its Spanish roots and its institutional stability will be preserved, thus protecting the employment and rights of policyholders, employees, agents and delegates of the Group.
• All of MAPFRE’s business activities will be valued by the market – and shall be submitted to the rules and scrutiny thereof -, thus laying the grounds for a large multinational group managed in accordance with MAPFRE’s distinctive principles and management culture.
• The size and market capitalization of MAPFRE, as well as its ability to raise new funds, will increase significantly, which represents a key factor for its future growth.
• The management of the Group as a whole, which will be scrutinized entirely by the market, will become more efficient and transparent, by eliminating the complexity of its present structure, in which a listed company and a mutual insurance company coexist.
• The requirements of the corporate by-laws of MAPFRE MUTUALIDAD will be fulfilled with respect to the final use of its net assets, most of which will revert back to Society through FUNDACIÓN MAPFRE, which will become a large foundation with much more substantial means to ensure the continuity its charitable activities and to multiply them according to its current foundational aims or to others that may be established at any future point in time to meet social needs.

MAPFRE also announced some ambitious plans for the Group over the next five years. These include:
• To rank among the ten largest Spanish companies by market capitalization, increasing substantially the liquidity of its shares.
• To become one of the five largest European Non-life insurance companies.
— To consolidate its leading position in Spain and Latin America across all insurance business lines, and achieve a significant presence in other EU countries.
• To expand its management model, particularly in Motor insurance, outwards and become a high-quality service provider, increasing its market share in Life, Savings and Pensions products.
• To accelerate MAPFRE’s projects of expansion into the USA and the Far East, especially China.
• To promote the growth of: the reinsurance business, with the aim of positioning MAPFRE among the ten largest reinsurers globally; of the Commercial Insurance business, to offer customers a comprehensive cover of their risks in the various countries in which they operate; and of the Assistance business, which should aim for global leadership.
• FUNDACIÓN MAPFRE, heir and guarantor of MAPFRE’s principles and culture, will develop and strengthen the Group’s social action, and will become a reference institution for its educational and cultural initiatives.

Those ambitious goals and the consequent expansion of MAPFRE’s global reach testify to the robust Spanish economy, currently one of the strongest in the EU with one of the highest growth rates. In addition its historical ties to Latin America provide a built in advantage for further expansion in the region. This restructuring should put it in an even better position to do so.

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