MAPFRE Sigorta reported a much improved financial performance in 2023, with a net income of TRY72m ($2.18m) [2022: a loss of TRY401m], noted Fitch Ratings.
The improvement was driven by sharply higher investment income as interest rates rose in 2H23 and foreign-exchange gains on investments. Its underwriting performance also improved, as reflected by a combined ratio of 119% in 2023 (2022: 142%).
Fitch said that it expects the insurer’s financial performance to remain commensurate to the rating, supported by strong investment income and improved, although still loss-making, underwriting performance in 2024.
Rating affirmed
Fitch has affirmed MAPFRE Sigorta's National Insurer Financial Strength (IFS) Rating at 'AA+(tur)'. The outlook is ‘Stable.’
The affirmation reflects MAPFRE Sigorta's importance to its parent, MAPFRE (Issuer Default Rating: A-/Stable) as well as strengthened capitalisation and improved financial performance. These factors are partially offset by the weakened competitive position of the insurer.
Aside from improved financial performance, other rating drivers for MAPFRE Sigorta include:
Ownership Benefits Rating: Fitch views MAPFRE's ownership of MAPFRE Sigorta as supportive of the rating, and assesses MAPFRE Sigorta as strategically 'Important' to its parent under its group rating methodology.
MAPFRE Sigorta benefits from MAPFRE's expertise in corporate governance, operational support, and risk management, and its strategic direction mirrors that of the parent. Fitch believes that MAPFRE would provide support to MAPFRE Sigorta and that the parent remains committed to the Turkish market, despite continued economic pressures in Turkiye, as demonstrated by the recent capital injection to strengthen MAPFRE Sigorta's capital.
Weakened Competitive Position: The insurer's share in the Turkish non-life market fell to 2.6% in 2023 (2022: 2.9%, 2021: 3.7%). This was due largely to a continued reduction of its market share in motor third-party liability (MTPL), which has been heavily loss-making for the entire sector in the past 10 years. The lower market share, in Fitch’s view, weakens MAPFRE Sigorta's competitive positioning but its substantially lower exposure to MTPL versus peers' supports Fitch’s view of its favourable business risk profile. MAPFRE Sigorta holds a well-established franchise in the Turkish insurance market.
Strengthened Capitalisation: MAPFRE Sigorta's local regulatory solvency ratio strengthened to 109% at end-2023 (2022: 78%), as a result of an increase in shareholders' equity due to very strong retained earnings. Additionally, MAPFRE has committed to provide TRY550m capital in 2024-2025. In 1Q24, its paid-in capital was increased, leading to a further strengthening of its regulatory solvency ratio to 127%. MAPFRE Sigorta's Prism model score also improved to 'Adequate' at end-1Q24 from 'Weak' at end-2022.
Domestic Risk Drives Asset Quality: MAPFRE Sigorta's investment portfolio carries similar risks to its Turkish peers', with high exposure to the Turkish banking sector through bank deposits and some concentration in Turkish sovereign bonds. In 2023 and 1H24, MAPFRE Sigorta increased its exposure to Turkish lira-denominated bank deposits to take advantage of higher interest rates offered on these instruments.