S&P lowers Mapfre and core subsidiaries’ ratings

The ratings apply to Mapfre Global Risks, Compania Internacional de Seguros y Reaseguros SA and Mapfre Re Compañía de Reaseguros SA, which S&P regard as core to Spain-based Mapfre insurance group.

The rating agency has also lowered the long-term counterparty credit rating on Mapfre Group’s holding company, Mapfre SA, to ‘A’ from ‘A’+. The outlook on the ratings on Mapfre SA and the entities in the Mapfre Group remains negative.

S&P has also lowered its long-term ratings on the junior subordinated debt of Mapfre SA to ‘BBB+’ from ‘A-‘.

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S&P revised to negative its outlook on the insurer financial strength and long-term counterparty credit ratings on the Mapfre Group’s subsidiaries that it regards as strategically important—Commerce Insurance Co. and Citation Insurance Co—and on the ratings on their intermediate holding company, Mapfre USA Corp.

“This is because their ratings, benefiting from two notches of support from their membership of the Mapfre Group, are, under our criteria, capped at one notch below the ratings on the core operating companies of Mapfre Group. We have affirmed the ‘A+’ long-term counterparty credit and insurer financial strength ratings on Commerce Insurance Co. and Citation Insurance Co, and the ‘BBB+’ long-term counterparty credit ratings on Mapfre USA Corp,” explained S&P.

The rating actions follow the lowering of the long- and short-term ratings on Spain. Under S&P’s criteria an insurer’s ratings are constrained by its view of country risk.

“With over 45% of the business written in its domestic market and a further estimated 40% in markets carrying lower sovereign ratings than Spain, the exposure of Mapfre SA and the Mapfre Group to country risk has, in our view, increased and is high relative to peer Europe-based global insurance groups,” said the rating agency.

Furthermore, S&P estimates that over 80% of the Mapfre Group’s investments and policyholder liabilities are held by entities domiciled in Spain or in lower-rated countries. While these assets are geographically diversified, it estimates that Spain and such lower-rated countries represent more than 75% of Mapfre Group’s total investment portfolio.

The Mapfre Group’s assets comprise mostly government debt and bank deposits, according to S&P. As of end of June 2011, the Mapfre Group had a €7.4bn exposure to Spanish government debt. This equates to about 20% of invested assets or 83% of total shareholder funds.

The Mapfre Group’s exposure to Italian, Greek, Irish, and Portuguese government debt amounted to €1.8bn. By S&P’s estimation this is similar to the Mapfre Group’s exposure to Latin American sovereign debt.

“The ratings on the Mapfre Group’s operating entities that we regard as core continue to reflect what we see as their very strong competitive position in Spain and Latin America, and their very strong capitalisation and operating performance. The ratings also reflect our view of the Mapfre Group’s management track record, which we consider a positive factor for the ratings. These factors are partially offset by the difficult economic and financial climate in Spain, the Mapfre Group’s core market,” said S&P.