As Best announced in conjunction with these current rating actions, they follow a series of actions taken last December to address the implications for euro zone insurers. Generally it changed the outlook on the ratings, including MAPFRE PRAICO, to negative from stable, while it carried out a more extensive review.
In this instance Best downgraded the issuer credit ratings (ICR) to “a” from “a+” and affirmed the financial strength rating of ‘A’ (Excellent) of the Puerto Rico based Insurance Company (PRAICO), its wholly owned subsidiary, MAPFRE Preferred Risk Insurance Company (PRICO), and an affiliate, MAPFRE Pan American Insurance Company (PAICO) collectively known as the MAPFRE PRAICO Group (MPG).
Best has removed all of the ratings from under review with negative implications and has assigned a negative outlook. All the above companies are domiciled in San Juan, Puerto Rico, unless otherwise specified.
Best noted that these actions follow those of its affiliate in London, A.M. Best Europe – Rating Services Limited, as it downgraded of the ICR to “a” from “a+ of MPG’s affiliate company, MAPFRE Re, Compania de Reaseguros, S.A. (MAPFRE RE) a key subsidiary of MAPFRE S.A. (both domiciled in Spain), the ultimate holding company of MPG.
As noted the actions “reflect MAPFRE S.A.’s exposure to the continuing negative developments regarding the euro zone sovereign debt crisis through sizeable exposures to peripheral euro zone debt.”
In addition Best indicated that “MAPFRE RE and MAPFRE S.A. (the consolidated group) face higher country risk due to the deterioration in the sovereign creditworthiness of Spain, whose debt accounts for 53 percent of the consolidated group €38 billion [$47.73 billion] has invested assets at year-end 2011, the majority of which is derived from investments in government and financial institutions.
“MAPFRE S.A. also maintains sizeable commercial property investments in Spain through its investment holdings. Spain remains the main profit center for the consolidated group, with approximately 40 percent of its consolidated gross written premiums and 60 percent of insurance results derived from its core market.
“Although the consolidated group enjoys a well spread geographically diversified portfolio, particularly in Latin America and the United States, the majority of its business is derived from countries with sovereign creditworthiness equal to or lower than that of Spain.
“Negative rating actions could occur if MAPFRE S.A. incurs a weakening in its risk-adjusted capitalization, which is tied to investment losses or a deterioration occurs in the operating environment of its key territories.”
“The ratings assigned to MPG are based on its consolidated operating results and the financial position of PRAICO, PRICO and PAICO. The ratings reflect MPG’s excellent capitalization, strong operating performance, which is reflective of its solid investment income and consistently profitable underwriting results, established market presence within Puerto Rico and strong risk management practices. The ratings also recognize MPG’s solid brand name and its integral role as a member of MAPFRE S.A.
“Partially offsetting these positive rating factors is MPG’s geographic concentration of risk, which potentially exposes its capital to frequent and severe weather-related events. Operating almost exclusively within Puerto Rico, operating results remain exposed to potential changes within the judicial, regulatory and economic climate. The negative outlook is driven by A.M. Best’s concern that MAPFRE S.A. has exposure to continuing negative developments regarding the euro zone sovereign debt crisis given its sizeable exposures to peripheral euro zone debt.
“The positive rating factors reflect MPG management’s conservative underwriting philosophy and comprehensive reinsurance program, which protect surplus from potential shock losses while enhancing the stability of earnings. Management remains conservative in establishing reserve estimates as evidenced by favorable calendar year reserve development over the long term. The Puerto Rican insurance market remains competitive as local insurers challenge each other for market share, particularly within the commercial lines that are unregulated.”
Source: A.M. Best
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