KEY INFORMATION ABOUT THE PERIOD
- The impact of COVID-19 was limited in the first quarter.
- Premiums total almost 6.1 billion euros (-4.7 percent).
- The Iberia regional area remains the driver of the Group’s growth, outperforming the sector in Spain.
- Improved insurance result in the Group’s principal regions.
- Earnings at the insurance unit, MAPFRE’s core business, grow by 10 percent, to 197 million euros.
- The Puerto Rico earthquake and Storm Gloria in Spain result in an impact of 68 million euros.
- The Group’s financial flexibility, solvency and liquidity remain hallmarks of MAPFRE’s resilience in the current situation.
- A decision regarding the 2020 interim dividend will be taken in the second half of the year.
1.- Strategy against COVID-19
The emergence of the coronavirus has marked a before and after in business, insurance and social activity, and since the second half of March, it has presented an unprecedented situation. In this context, MAPFRE has developed a series of measures aimed at ensuring the safety of its employees and collaborators and guaranteeing the continuity of operations, maintaining service levels for its clients.
The most relevant actions are as follows:
- Activation of the business continuity plan in all countries and units, adapting it to the uniqueness of the COVID-19 crisis, with about 90 percent of employees worldwide working remotely, and maintaining essential services (tow trucks, repair shops, home repairs, medical centers, funeral homes etc.)
- Assessment of the risks arising from the crisis and adoption of a strategy to protect the balance sheet, especially investments, and to preserve the Group’s capital, ensuring the necessary liquidity and financing to neutralize any monetary stress, especially in operations in emerging countries.
- Mobilization of resources and transfer of funds to the economy, either through direct donations to society and measures for policyholders, as well as through the granting of additional aid and financing to agents, direct providers and clients, with a particular focus on the self-employed and SMEs. These actions are complemented by the additional social work provided by Fundación MAPFRE to address this crisis.
2.- Economic information from the first quarter of 2020
The following figures are provisional. The definitive set of figures will be presented to the Board of Directors at its meeting on May 18 next.
MAPFRE’s net earnings for the first three months of this year were 127 million euros, 32 percent lower than in the same period of the previous year. The result was dragged down by the earthquake suffered by Puerto Rico at the beginning of the fiscal year, the impact of which amounted to 54 million euros, and the effects of Storm Gloria in Spain, with an impact of 14 million euros. Emerging-country currencies have also had a negative impact, cutting more than 6 million from the net result. Excluding the impact of these catastrophic events, the adjusted result would have been 190 million euros, with growth of more than 3 percent.
Revenues stood at 7.33 billion euros, 4.5 percent less than between January and March 2019, and premiums fell by 4.7 percent to 6.1 billion euros. This decrease is mostly explained by the depreciation of the main currencies of Latin America and the Turkish lira (12 percent). At constant exchange rates, the decreases in revenues and premiums would have been 1.6 and 1.5 percent respectively.
Although confinement as a result of the coronavirus crisis has reduced the taking out of new insurance policies, the health and economic crisis in Europe and America has occurred mainly in April, so the effect on the accounts for the first quarter was limited.
However, an increase in the claim experience is expected in the lines directly related to this illness, such as Health, Burials and Life. The economic standstill and confinement will translate in the short-term into a decrease in claims in the Automobile insurance and General P&C lines, and in the medium- to long-term will result in a reduction in premium revenue.
MAPFRE’s combined ratio at the close of March was 100 percent, increasing by 4.1 points. However, the combined ratio of the insurance unit stood at 97.2 percent, which represents an increase of less than one point, despite the impact of the earthquake in Puerto Rico.
The sharp drop in the stock markets and the depreciation of the currencies in several emerging countries have affected the value of the Group’s assets and capital. Thus, assets under management have fallen by 6.9 percent to 59.27 billion, and shareholders’ equity stands at 7.86 billion, 11.2 percent less than in December 2019.
The Solvency II ratio at the close of December 2019 stood at 187 percent, compared with 195 percent in September. It is important to emphasize that both the Group’s capital position and solvency remain excellent, with limited exposure to interest rate risk, given the high percentage (56 percent) of sovereign debt in MAPFRE’s investment portfolio. The Group’s investments amount to 50.3 billion euros, of which, in addition to 56 percent in sovereign debt, 18 percent are in corporate fixed income and 4 percent in equity.
Also of note are the financial flexibility and high liquidity levels, which have become a hallmark of MAPFRE’s resilience in the current situation: most financial assets are liquid and the cash position is significant (over 2.7 billion, 5 percent of total investments) and, in addition, credit lines are available, as are pre-approved but not yet drawn down bank financing.
3. Business performance:
Premiums for the Insurance Unit between January and March amounted to 5.09 billion euros (-5.2 percent), while attributable earnings increased by 10 percent to 197 million euros.
- In the Iberia Regional Area (Spain and Portugal), premium volume was 2.42 billion euros, which represents a decrease of 4.4 percent, compared with a fall for the sector in Spain of 6.8 percent. The effects of Storm Gloria dragged down earnings in this regional area, which came in at 103 million euros, 13.7 percent less, and increased the combined ratio by 3.9 points to 96.5 percent.
- In Brazil, the depreciation of the Brazilian real (16.3 percent) significantly affected premiums, which fell by 13.3 percent to 838 million euros. Profits, however, increased by 18 percent, to 29 million euros, and the combined ratio improved by 0.4 points, to 95 percent, demonstrating the resilience of the business in this region.
- The LATAM North Regional Area business grew by 20 percent to 484 million euros. This regional area continues on a positive path in terms of profitability, with earnings rising by 74 percent to 23 million euros, with the solid performance of both Mexico and the Central American countries standing out. The combined ratio also improved significantly (5.3 points) to 90.9 percent.
- The LATAM South Regional Area premiums totaled 371 million euros, down by 6.7 percent. Earnings growth was however notable, with profits up by 24.4 percent, exceeding 13 million euros, with a combined ratio of 97.3 percent.
- In the North American Regional Area, premiums exceeded 510 million euros (-7.3 percent) at the close of March. Earnings, which include a net capital gain of 14 million from the sale of a building, were up by 79 percent to 24 million euros, despite the negative impact of the earthquake in Puerto Rico.
- EURASIA Regional Area premiums decreased by 10 percent to 473 million euros, strongly impacted by the depreciation of the Turkish lira (12 percent). The improvement in the result in both Italy and Turkey is noteworthy, translating into a profit of 5 million euros for this regional area, compared with losses to March of the previous year. The measures taken within the framework of the profitable growth strategy are reflected in the combined ratio, which improved by 7 points.
- Reinsurance Unit premiums at the close of the first quarter of this year were 1.06 billion euros (-18 percent), with a negative result of 22 million euros due to, among other impacts, the Puerto Rico earthquake.
At MAPFRE GLOBAL RISKS, premiums rose by 41.6 percent to 349 million euros, and the negative result of 8 million euros corresponds almost entirely to the earthquake in Puerto Rico.
Finally, premiums at the Asistencia unit decreased by 5.6 percent to 220 million euros, due to the impact of the shutdown in global tourism, and its result (-12 million euros) is particularly affected by the collapse in travel insurance coverage, due also to COVID-19.
The Board of Directors has agreed to pay the final dividend for the fiscal year 2019, approved at the Annual General Meeting on March 13, and equivalent to 8.5 euro cents per share, on June 25 of this year. With regard to the 2020 interim dividend, which is generally paid in December, and following the recommendations of the Supervisor, the Board has decided to postpone its decision on the dividend until the second half of the fiscal year when more accurate information is available on the economic impact of COVID-19 on MAPFRE.