MAPFRE Sigorta Anonim Sirketi (MAPFRE Sigorta) improved its financial results sharply in 1H2020, in line with Turkish insurance market trends, due largely to an improved loss ratio on motor and health lines from a pandemic-induced lower claims frequency, says Fitch Ratings.
The international rating agency has affirmed MAPFRE Sigorta's National Insurer Financial Strength (IFS) Rating at 'AA+(tur)'. The outlook is stable.
Fitch says that the company's combined ratio was 99% in 1H2020, down from 114% in 2019. The rating agency expects MAPFRE Sigorta's end-2020 results to recover to levels that are supportive of its rating, despite expected 'real' interest rates at below zero on average, after 2019 and 2018 results were notably impacted by adverse motor third-party liability (MTPL) reserving experience. Fitch believes MAPFRE Sigorta will be less likely to have MTPL reserving issues in the near future.
Support from parent company
Fitch says that the National Rating of MAPFRE Sigorta reflects the high importance in Fitch's analysis of the potential support from MAPFRE SA, MAPFRE Sigorta's ultimate parent. Fitch views ownership as positive for the rating, and assesses MAPFRE Sigorta as 'Important' to MAPFRE SA under its group rating methodology. The rating also reflects MAPFRE Sigorta's strong and well-established franchise in the Turkish insurance market, as well as our view that its credit profile should remain fairly resilient to coronavirus pandemic-related pressures.
MAPFRE Sigorta benefits from its parent's expertise in corporate governance, operational support and risk management, and its strategic direction also mirrors that of the parent. Fitch believes that MAPFRE SA would provide capital support if needed, and that the parent remains committed to the Turkish market despite continued economic pressures in Turkey amid the pandemic.
MAPFRE Sigorta's market share in the Turkish non-life insurance sector declined to 3.9% in 1H2020, from 4.8% in 2019 and 6.8% in 2017. This was due largely to its strategic partial retreat from MTPL lines, which were loss-making for MAPFRE Sigorta and other Turkish insurers in recent years. Fitch ranks its business profile as 'Moderate' compared with other Turkish insurers'.
MAPFRE Sigorta's declining market share constrains Fitch's view of its competitive positioning, while its strategic partial divestment from MTPL is positive for its business risk profile. Fitch expects the company to stabilise its market share in 2020 and 2021, and to remain in the top-10 Turkish non-life insurers.
MAPFRE Sigorta's capitalisation supports the rating, despite a slightly lower regulatory solvency ratio than its Turkish competitors', which improved to 114% at end-2019 (end-2018: 109%). The company scored 'Adequate' on Fitch's PRISM Factor-Based Model in 2019, and benefitted from the absence of dividend to its parent in 2020. Its financial flexibility is reliant on its parent's, which is positive for the rating given MAPFRE SA's very strong credit profile and global reach and expertise.
MAPFRE Sigorta's investment risks are high and highly correlated to the Turkish economy, albeit reflecting local practices. At end-1H20, the company mostly invested in deposits in Turkish banks (63% of investments) as well as fixed-income investments (37%), mostly Turkish sovereign bonds. Similar to its Turkish peers, the company invested more in bank deposits in 2019, before slightly reducing its exposure in 1H20 due to the highly volatile Turkish deposit rates, which positively reflects on its liquidity profile.
Fitch considers MAPFRE Sigorta's centralised reinsurance coverage provided by MAPFRE Re — the reinsurance arm of MAPFRE SA — to be supportive of the rating, as the company benefits from the expertise of its parent on its reinsurance structuring. Its main catastrophe exposure is earthquake risk, similar to Turkish peers. Fitch views the company's net probable maximum catastrophe losses as manageable relative to capitalisation, indicating conservative net catastrophe risk appetite. Fitch believes reinsurance risks will remain limited for MAPFRE Sigorta, as it will continue to benefit from a strong support and expertise from MAPFRE Re.