A.M. Best Europe – Rating Services Limited has downgraded the issuer credit rating (ICR) to “a” from “a+” and affirmed the financial strength rating of ‘A’ (Excellent) of MAPFRE RE, Compania de Reaseguros, S.A, a key subsidiary of MAPFRE S.A. (both domiciled in Spain), the ultimate holding company of the MAPFRE Group.
Best also, announced that all of the ratings have been removed from under review with negative implications and assigned a negative outlook.
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 Re’s, to negative from stable, while it carried out a more extensive review.
Best explained that the rating actions “consider the higher country risk faced by MAPFRE RE and MAPFRE S.A. (the consolidated group), due to the deterioration in the sovereign creditworthiness of Spain. In particular, the downgrading of the ICR of MAPFRE RE is driven by the assessment of the consolidated group’s financial strength.”
MAPFRE S.A. maintains significant investments in the peripheral euro zone economies, with Spanish debt accounting for 53 percent of the consolidated group’s €38 billion [$47.73 billion] invested assets at year-end 2011, the majority of which is derived from investments in government and financial institutions.”
Best indicated that although MAPFRE RE is less exposed to the financial markets, it is “not immune from the troubles of Spain, with material exposure to Spanish sovereign and financial institutions debt. MAPFRE S.A. also maintains sizeable commercial property investments in Spain through its investment holdings.
“Spain remains the main profit center for the MAPFRE Group, with approximately 40 percent of consolidated gross written premiums and 60 percent of insurance results derived from its core market. Although the 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.
“A positive rating factor is MAPFRE RE and MAPFRE S.A.’s strong business profile, operating performance and risk-adjusted capitalization, which to date has been unaffected by the deterioration of the euro zone economies.”
Best concluded that “upward rating movement is unlikely at this point. Negative rating actions could occur if there were a worsening of risk-adjusted capitalization, either at a consolidated or stand alone level, tied to investment losses or a deterioration of the operating environment in Spain.”
Source: A.M. Best
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