Best Affirms MAPFRE USA and Group Members Ratings; Outlook Negative

June 3, 2013

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit rating (ICR) of “a” of the members of MAPFRE USA GROUP. The lead company in MAPFRE USA is The Commerce Insurance Company, based in Webster, Mass., and includes its inter-company pool members, Citation Insurance Company, also in Webster, Commerce West Insurance Company in Pleasanton, Calif., American Commerce Insurance Company in Columbus, Ohio, MAPFRE Insurance Company of New York, based in Garden City, New York, MAPFRE Insurance Company of Florida in Miami and MAPFRE Insurance Company, based in Florham Park, New Jersey.

Best has also affirmed the ICR of “bbb” and debt rating of “bbb” on the $300 million 5.95 percent senior unsecured notes due 2013 of the parent holding company, MAPFRE U.S.A. Corp.

The outlook, however, for all of the ratings is negative.

Best said the ratings reflect MAPFRE USA’s “solid risk-adjusted capitalization, good operating performance and local market expertise. In addition, MAPFRE USA’s inter-company pool members provide geographic diversification and rate flexibility to the group. The outlook reflects the potential weakening in the consolidated risk-adjusted capitalization of MAPFRE USA’s ultimate parent organization, MAPFRE S.A. (Spain).”

However, Best noted that these positive rating factors are “partially offset by the group’s concentration of business in Massachusetts, which is focused on private passenger automobile insurance, as well as it’s susceptibility to weather-related losses.”

As an overall concern, Best explained that “MAPFRE S.A. faces higher country risk due to deterioration in the sovereign creditworthiness of Spain over recent years. At the 2012 year end, Spanish sovereign debt accounted for nearly 25 percent of the consolidated group’s €39 billion [$50.82 billion] of invested assets.

“MAPFRE S.A. also maintains sizeable exposure to Spanish financial institutions and commercial property via its Spanish holdings. The Spanish insurance market remains important to MAPFRE S.A., with approximately 33 percent of its consolidated gross written premiums and 38 percent of its consolidated insurance result derived from domestic business in its home market.

“Although the consolidated group enjoys a 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.”

In conclusion Best said: “Upward rating movement is unlikely over the near term. Negative rating pressure would likely originate from MAPFRE S.A. and would arise if there were a worsening of risk-adjusted capitalization tied to investment losses or a deterioration of the operating environment in Spain.”

Source: A.M. Best

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