Best Places MAPFRE PRAICO Group’s Ratings on Review/Negative

A.M. Best Co. has placed under review with negative implications the financial strength rating of ‘A’ (Excellent) and issuer credit ratings of “a+” of MAPFRE PRAICO Group (MPG) and its members, which include MAPFRE PRAICO Insurance Company (PRAICO), its wholly owned subsidiary, MAPFRE Preferred Risk Insurance Company (PRICO), and an affiliate, MAPFRE Pan American Insurance Company (PAICO), whose businesses are significantly reinsured by PRAICO. All of these companies are domiciled in San Juan, Puerto Rico.

Best explained that the rating actions follow the downgrading of the ratings on the group’s affiliate, Spain’s MAPFRE RE, Compania de Reaseguros, S.A. (MAPFRE RE), a key subsidiary of MAPFRE S.A., the group’s ultimate parent given MAPFRE RE and MAPFRE S.A.’s “exposure to investments in several peripheral euro zone economies, in particular Spain and Portugal.

“This is compounded by MAPFRE SA.’s exposure to commercial property in Spain through its investment holdings. While MPG maintains an extensive reinsurance program with MAPFRE RE, as well as other highly rated reinsurers, the negative implications imply that the ratings may be downgraded based on A.M. Best’s ongoing review of the parent organization and any resulting pressure on MAPFRE RE and MAPFRE S.A.”

Best noted that the “rating actions on MAPFRE RE and other European (re)insurers reflect their exposure to the continued deterioration of the sovereign creditworthiness of several euro zone countries and the negative economic outlook for the region. The rationale for taking rating action at this point is largely attributable to the current heightened level of credit and liquidity risk for insurers operating within the euro zone countries—most notably Italy and Spain. The perceived strain on the economies of these countries and companies operating within their borders is growing rapidly with very little evidence of a solution being formulated to address near-term concerns.

The ratings for MPG and its members will remain under review with negative implications while Best examines these companies’ exposure to a prolonged adverse economic environment within the euro zone.

Best added that it is particularly concerned by “the exposure to Italy and Spain’s sovereign bonds and the potential for contagion into other asset classes; particularly holdings of European bank securities”

Best said it would “assess the likely impact of a prolonged financial crisis and recessionary environment on these carriers’ market position and ongoing business operations. Upward rating actions are unlikely at this point.

“Negative rating actions could occur should risk-adjusted capitalization weaken considerably due to investment losses, a significant increase in catastrophe related losses, or a significant deterioration in operating performance. Additional negative rating factors include a downgrading of the parent company’s ratings due to exposure to the European debt crises.”

Source: A.M. Best

Topics Europe Reinsurance