EUR 200.00 For Business Accounts Only

MAPFRE: MEETING WITH THE COMPANY (ANÁLISIS BANCO SABADELL)

Highlights from our meeting today with the CFO:
 Business prospects: The company expects a drop in premiums due to both the voluntary return of premiums in some countries and lower sales figures as a result of the closure of businesses/distribution channels. This would be the case, for example, of auto insurance policies sold through concessionaires/financial companies, which are very common in LatAm. This expected drop will be offset with cost savings from the suspension of projects that now are not necessary. With this in mind, the Combined Ratio should at least remain stable. As for Covid-19, the company reiterates that it only expects to see a significant impact in funeral plans and assistance insurance. However, in its 1Q’20 results, the company made a provision for the latter, meaning that the additional impact should be irrelevant. In the high-risk segment, the company does not have an exposure to Workers compensations or the cancellation of events. The loss of profit risk only affects Mapfre RE, given that it reinsures companies that might be forced to give compensations. The amount is uncertain, as it depends on whether policy holders file a claim or not, how long the cessation of activity will last and whether companies will receive a compensation from governments. In any event, although the company cannot provide further visibility, its exposure is small and will affect the results, but not its capital.
 Solvency: The company is not concerned that the ratio may stand below 175%, as it believes this would be temporary and because there are other positive multiples that they take into consideration (opinion of rating agencies). It reiterates that it expects the approval of the internal models in Mapfre Life Spain for the calculation of the group’s solvency. This will add around +10bps. Mapfre Life already has the approval, and has a solvency ratio of ~460%.
 Dividend: The decision on the payment of the interim dividend’20 will be made in the 3Q’20, although the management team is aware of the relevance of the dividend for retail shareholders. The interim dividend payment will depend on solvency, results adjusted for one-offs (non-cash) and liquidity. As for liquidity, there are voluntary or regulatory restrictions in terms of dividend repatriation in some LatAm countries but this is not the case of the US where Mapfre SA has actually obtained around US$ 40 M in the 1Q’20. We must also bear in mind the excess solvency of Mapfre Vida and Mapfre España (~240%), where thera re
The company conveyed a message of confidence on all levels, where the main uncertainty, that surrounding the dividend, will not be dispelled until after the summer. In any event, we already assume in our estimates a cut to DPS’20 to € 0.11/sh. (around -25% vs. 2019) to set the payout again at the target range of 50-65% (and vs. >70% in 2018-19). Our estimate means a yield of around 7% and we reiterate our BUY recommendation.