OREANDA-NEWS. Fitch Ratings has affirmed Mapfre SA's (Mapfre) Issuer Default Rating (IDR) at 'BBB' and its core operating subsidiaries' Insurer Financial Strength (IFS) ratings at 'A-'. The Outlook on the ratings is Stable. A full list of rating actions is at the end of this release.

KEY RATING DRIVERS
The affirmation reflects Mapfre's strong underwriting performance in 1H14 and its strong and stable level of risk-adjusted capitalisation. Offsetting factors include Mapfre's exposure to the Spanish sovereign (BBB+/Stable) and other countries rated 'BBB+' and below.

Spain's sovereign rating (BBB+/Stable) continues to weigh on the group's ratings. The ratio of Spanish fixed income instruments to shareholders funds remained high at end-1H14 at 124% (YE13: 115%), which leaves Mapfre substantially exposed to the Spanish economy.

Mapfre's credit fundamentals are supported by its solid capital adequacy (247% at end-2013) and consolidated shareholders' funds of EUR8.5bn at end-1H14 (YE13: EUR7.8bn). The increase in shareholders' funds of EUR650m since YE13 was predominantly due to falling spreads in Spain, the appreciation of the Brazilian real, the US dollar and the Turkish lira.

Fitch considers Mapfre's financial leverage as low and supportive of the ratings, and expects it to remain stable in 2014. Mapfre's Fitch-calculated financial leverage declined to 21% at end-2013 from 24% at end-2012, compared with its peak of 33% at end-9M12.

The ratings incorporate Fitch's expectation that Mapfre will maintain a strong and stable underwriting performance. At 1H14, Mapfre reported a combined ratio of 95.7% (1H13: 95.6%). The life business reported a result of EUR373.8m (1H13: EUR284.3m).

The ratings also reflect Mapfre's strong franchise and access to distribution in Spain and Latin America. Mapfre remains a market leader in Spain, with a 13% market share and a strong player in Latin America with a 9.5% share.

RATING SENSITIVITIES
Mapfre's ratings could be downgraded if its exposure to the Spanish insurance market or sovereign debt results in investment losses with a material impact on capital. Mapfre's ratings could also be downgraded if the Spanish sovereign rating is downgraded.

Factors that could trigger an upgrade include an upgrade of Spain's rating, alongside strong group capitalisation (as measured by, for example, the regulatory Solvency I ratio remaining above 200%), or exposure to Spanish debt falling below 100% of group shareholders' funds (currently 115%).