Mapfre’s technical performance for the quarter recorded low and disappointing levels, in both the Life and Non-life businesses, on the back of normalisation of the combined ratio in Iberia.
However, this miss was offset by Life’s strong financial result and, coupled with the strong performance of Mapfre Re, enabled the Spanish insurer to beat consensus.
Companies: Mapfre (MAP:BME)Mapfre SA (MAP:MCE)
Mapfre posted satisfying results for its H1 release and keeps delivering as expected, with guidance reiterated. The insurer’s upside remains, according to us, locked-in and a function of the pace of recovery in Europe and the US, but also especially in LatAm and Brazil.
Mapfre’s Q1 21 release was not so surprising. The Spanish insurer can rely upon better-than-expected results in Iberia saving the day, as the company continues suffering in Brazil and North America. However, this was expected and the latter country looks to be recovering substantially better and faster than Europe, pushing our optimism for Mapfre’s investment recommendation.
Mapfre recorded a strong decline in revenues (-11.8% yoy to €13,277m), driven by COVID-19 that has affected the Life Savings’ sales, currency depreciations (BRL and TRY) and the drop in financial income from investments (-24.9% to €1,226m). The decrease in the net result (-27.7% to c. €271m) came from Mapfre Re while the Insurance units performed well. The group has updated its IBNR reserves to cover the delays in reporting claims. The Board will assess future dividends in Q4 20.
Companies: Mapfre SA
Mapfre reported declining revenues (-4.5% yoy tp €7.33bn) and weaker net earnings (-32% yoy to €127m). This decline was not caused by COVID-19 but by nat cat events. Excluding these, the net earnings stood at €190m, up 3% yoy. The insurer expects to see the consequence of the pandemic in Q2. The market’s volatility should also impact investment income. The capital position at March 2020 was not revealed, but Mapfre said that it was solid enough.
In FY 19, Mapfre’s revenues increased by 7.1% to €28,472m, driven by the improvement in Non-Life premiums (up 2.9% to €17,559m). Iberia continues to be the key profits generator, with an attributable result of €497m (>81% of the group’s). We appreciate the positive trends in the restructured business units in Brazil and the US. However, Mapfre Re needs additional time to reduce its exposure to global risks. The dividend was stable, as announced by the insurer in late 2019.
Our model integrates perfectly the losses announced by Mapfre and relative to the recent nat cat events and disturbances in Chile. We anticipated also a stable dividend for FY 19 and a decreasing Solvency II ratio. The company confirmed the fragility of its profitability and its high dependence on its Spanish business. However, it is still enjoying a solid capital position.
Mapfre reiterated the scenario of H1 19 with better revenues (up 6.5% at current FX to €21,619m) but lower earnings (-12.5% to €463m). The insurer decided to revise the business outlook of MAPFRE ASISTENCIA’s companies in the UK, the US and Canada, leading to goodwill writedowns of €77m. If we take into consideration the impairments of December 2018, the net profut of the group would have been stable relative to 9M 18. The Solvency II ratio remained solid at 198%.
Despite improved revenues (up 6.8% at current FX) to €15,051m, coming from both Life and Non-Life business, Mapfre was unable to increase its net profit (-2.9% to €374m). The pressure on profitability came from the Life business (-37.8% in insurance result to €252m). The Brazilian and LatAm South operations were behind this drop. The Non-Life business was more resilient, and the combined ratio was in line with the fixed target (<96%). We will revise down our estimates.
The Non-Life business of Mapfre is under pressure with a voluntary rigorous underwriting policy and growing competition. The deal with Santander is an opportunity to increase sales volumes at a relatively lower cost. In addition, the expertise of the bank in the SME segment is a guarantee for the quality of the future business.
Mapfre began well 2019 in terms of sales with a 5.8% rise in revenues to €7,674m. Non-Life and Life premiums reached €4,999m (up 0.7% yoy) and €1,399m (up 13.7% yoy), respectively. The Iberian units are the heart of the insurer’s profitability with a net profit of €119.6m, while the group’s one amounted to €188.1m. Mapfre Re is another business unit undergoing change with the integration of the Global Risks operations. We expect a better performance in next quarters.
FY 18 Mapfre’s revenues declined by 5% to €26,589m, driven by the Non-Life premiums’ drop (-6% to €17,060m). The negative trend in emerging currencies was damaging to the insurer. The Life business posted a 2.8% increase in sales, but the division’s earnings declined 5.3% yoy to €681m. Net profit decreased by 24.5% to €529m. The ongoing restructuring process has negatively impacted the FY 18 earnings, but the dividend was kept at the expected level.
Mapfre completed the sale of its New York operations announced in June 2018. This is part of the strategy to focus on core states and lines of business. The US business should continue to post weak operating performances in 2019-20 despite management’s efforts. The performance and the valuation of the Spanish company is largely driven by local and Brazilian operations.
9M 18 Mapfre’s revenues declined by 4.7% to €20,296m, driven by the Non-Life drop (-7.1% to €13,086m). The negative trend in emerging currencies was damaging for the insurer. The results of the Life and Non-Life business remained steady, at €640m and €566m, respectively. The net profit increased by 18.9% to €528m. Mapfre has received the regulatory authorisation to complete its Brazilian restructuring. No major changes are expected in our model. The ongoing restructuring process is making the FY
A difficult H1 18 for Mapfre, which recorded a decline in all indicators: -8.7% in revenues to €14,091m, and -7.1% in net profit to €385m. Adjusted for the US exit plan in 2018 and the corporate transactions in 2017, the attributable result posted a 1.1% improvement. With the depreciation of emerging currencies, the profitability of the insurer is more than linked to the Iberian and reinsurance businesses. Earnings should show fragility with the current reorganisation processes in major markets.
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