S&P Sees No Affect on Mapfre Sistema Ratings from Italian Auto Deal

Standard & Poor’s Ratings Services said that its “ratings and outlook on entities of the Spanish Sistema Mapfre insurance group are unaffected by its acquisition of 50 percent of the agency-based motor operations of Società Cattolica di Assicurazione [rated ‘A’/credit watch/negative], the Italian composite insurer.” The principal operating entity of Sistema Mapfre is currently Mapfre Mutualidad de Seguros y Reaseguros a Prima Fija (rated-‘AA’/Stable/–).

“Mapfre and Cattolica announced on Dec. 18, 2006, that they had reached an agreement whereby they would jointly develop motor business in Italy distributed via the agency channel,” S&P noted. “The joint venture is expected to come into force during 2007, following regulatory approvals, and will involve a merger of the agency-based motor insurance operations of Cattolica and its subsidiaries, Duomo Assicurazioni (not rated) and UniOne Assicurazioni (not rated). The new entity is to be renamed Mapfre Cattolica Auto, in which Mapfre and Cattolica will each have a 50 percent holding and equal board representation.”

Mapfre is to pay €473 million ($622.5 million) for its 50 percent stake. The agreement is subject to review every five years.

“We acknowledge that there are potential long-term benefits to be gained for Mapfre from applying its recognized expertise in agency-based motor insurance to the Italian market via the Cattolica group, with whom it has a long-established relationship. In the shorter term, however, it remains to be seen whether Mapfre is able to exercise sufficient control in the joint venture to influence results and justify its investment,” stated S&P credit analyst Peter McClean. “Consequently, the transaction is viewed as neutral for the ratings. We expect the financing of the acquisition to preserve Sistema Mapfre’s fixed-charge coverage at more than 15x and leverage at less than 5 percent.”

Source: Standard & Poor’s