Ratings Roundup: MAPFRE PRAICO, Tunis Re

June 28, 2012

A.M. Best Co. has commented that the financial strength rating of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a” of MAPFRE PRAICO Insurance Company, 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), remain unchanged following the recent market volatility surrounding Spain’s economic conditions, derived from the uncertainty that underpins the country’s banking sector. All the above companies are domiciled in San Juan, Puerto Rico. The comment corresponds with A.M. Best Europe – Rating Services Limited’s comment that the FSR of ‘A’ (Excellent) and ICR of “a” of MPG’s affiliate company, MAPFRE Re, Compania de Reaseguros, S.A. (MAPFRE RE) are unchanged. MAPFRE RE, is a key subsidiary of MAPFRE S.A. (both domiciled in Spain), the ultimate holding company of the MAPFRE Group. Best’s comment follows the announcement that Spain will borrow up to €100 billion [$125 billion] from the European Financial Stability Facility or the European Stability Mechanism, to recapitalize its banks. Best said that in its opinion, “the perceived reduction in financial flexibility of the Spanish sovereign does not have an immediate and direct impact on the rating fundamentals of MAPFRE RE. This view is supported by stress tests undertaken on the company’s risk-adjusted capitalization, with the results remaining within Best’s tolerance level.” However, Best also indicated that the “high level of investments in Spanish sovereign and financial institutions debt remains a concern, together representing 153 percent of MAPFRE S.A. shareholders’ funds as of the first quarter of 2012.” Best also said it acknowledges that there are “outstanding uncertainties relating to the terms of the €100 billion loan and the external audits of Spain’s banking sector; and as such, A.M. Best may take negative actions on the ratings of MAPFRE RE in the event of further erosion to Spain’s sovereign creditworthiness. On June 6, 2012, A.M. Best downgraded the ICRs to “a” from “a+” and affirmed the FSR of A (Excellent) of MAPFRE PRAICO and its affiliates. At that time, the ratings were removed from under review with negative implications and assigned a negative outlook.

A.M. Best Co. has commented that the financial strength rating of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a” of MAPFRE PRAICO Insurance Company, 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), remain unchanged following the recent market volatility surrounding Spain’s economic conditions, derived from the uncertainty that underpins the country’s banking sector. All the above companies are domiciled in San Juan, Puerto Rico. The comment corresponds with A.M. Best Europe – Rating Services Limited’s comment that the FSR of ‘A’ (Excellent) and ICR of “a” of MPG’s affiliate company, MAPFRE Re, Compania de Reaseguros, S.A. (MAPFRE RE) are unchanged. MAPFRE RE, is a key subsidiary of MAPFRE S.A. (both domiciled in Spain), the ultimate holding company of the MAPFRE Group. Best’s comment follows the announcement that Spain will borrow up to €100 billion [$125 billion] from the European Financial Stability Facility or the European Stability Mechanism, to recapitalize its banks. Best said that in its opinion, “the perceived reduction in financial flexibility of the Spanish sovereign does not have an immediate and direct impact on the rating fundamentals of MAPFRE RE. This view is supported by stress tests undertaken on the company’s risk-adjusted capitalization, with the results remaining within Best’s tolerance level.” However, Best also indicated that the “high level of investments in Spanish sovereign and financial institutions debt remains a concern, together representing 153 percent of MAPFRE S.A. shareholders’ funds as of the first quarter of 2012.” Best also said it acknowledges that there are “outstanding uncertainties relating to the terms of the €100 billion loan and the external audits of Spain’s banking sector; and as such, A.M. Best may take negative actions on the ratings of MAPFRE RE in the event of further erosion to Spain’s sovereign creditworthiness. On June 6, 2012, A.M. Best downgraded the ICRs to “a” from “a+” and affirmed the FSR of A (Excellent) of MAPFRE PRAICO and its affiliates. At that time, the ratings were removed from under review with negative implications and assigned a negative outlook.

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” of Société Tunisienne de Réassurance (Tunis Re), both with stable outlooks. The ratings of Tunis Re “reflect its increasing risk-adjusted capitalisation and good resilience in the context of the unrest in Tunisia,” Best explained. As partial offsetting factors Best noted the company’s profile, which is “limited to the Tunisian market and the relatively high level of the economic and financial systemic risk. Additionally, Tunis Re’s underwriting performance decreased in 2011due to the adverse market conditions. Best added that in its view, “Tunis Re’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), is expected to improve going forward due to a recent capital injection. Tunis Re increased its overall capital by TND 60 million ($40 million) – equally distributed between fresh capital and premium issue), which was successfully completed in May 2012.” Best also noted that “Tunis Re responded promptly with new strategic actions to the critical political situation affecting Tunisia and Arabic countries during 2011. Despite the economic situation, the company has been able to renew all 2010 reinsurance treaties and created a federation with all domestic insurers in order to review policy rates and to guarantee a coherent pricing within the Tunisian insurance market. Tunis Re’s business profile as well as its investment portfolio is limited to the Tunisian market,” a country that Best said it “considers to have a relatively high level of economic and financial systemic risk. At the beginning of 2011 Tunisia was shocked by a political unrest, but with the elections held in October 2011, an interim government was designated and the situation is temporarily settled. Nevertheless, the political situation remains uncertain, and the new government has to demonstrate its capability to support the economic recovery until the parliamentary elections that are set to be held between March and June 2013. For 2011, the company reported a decrease in its overall profitability. The profits-before-tax in 2010 were TND 5.4 million ($3.8 million), though for 2011 the result decreased by 50 percent due to the increase in net claims incurred during the political movement. Tunis Re’s overall business, in terms of gross written premiums, decreased by 4.3 percent, especially in the aviation and engineering lines of business.” Best indicated that key factors, which “could trigger negative rating actions include a downward trend in underwriting performance, deterioration in risk-adjusted capitalisation and the credit quality of investments. An aggravation of the political situation also could have a negative impact on Tunis Re’s ratings. Rating upgrades are unlikely at this time.

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