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MAPFRE: PRELIMINARY 1Q’20 RESULTS (ANÁLISIS BANCO SABADELL)

1Q'20 vs. 1Q'19 Results
Premiums: € 6.1 Bn (-4.7% vs. -0.9% BS(e) and -3.0% market consensus);
Net Profit: € 126.8 M (-32.6% vs. -2.1% BS(e) and -2.2% consensus);

The company has released € 127 M of Net Profit, ~-30% below expectations, due to the impact from natural catastrophes (storm Gloria in Spain €-14 M; earthquake in Puerto Rico €-54 M) and FX (€-6 M). Premiums fell -5% (also worse than expected) due to the impact from currencies (-7%).
Excluding the impact from natural catastrophes, which neither the consensus nor we included in our estimates, Net Profit would have come in at € 181 M (vs. € 184 M expected). In this regard, we are surprised at the high insured costs bearing in mind that in Spain, storm damages were covered by the Insurance Compensation Consortium, meaning that the costs for the sector should have been low, and that in Puerto Rico the total insured cost is estimated to be significantly lower than that incurred after Hurricane Maria in 2017 (-40% according to Fitch ratings), despite which MAP has received a similar impact (€-54 M vs. €-60 M in 2017). We expect the company to clarify this issue in today’s conference call at 11:00 (CET).
By divisions, RE was the worst performer, with a -7% drop in premiums and €-30 M of net losses due to the impact from catastrophes (and vs. € 51 M in 1Q’19 and € 54 M BS(e), € 47 M consensus). Performance was also weaker than expected in: (i) Spain (-4% in premiums vs. -1% expected; -14% in Net Profit vs. -8% expected BS(e) and consensus), due to the impact from storm Gloria; (ii) Assistance (€-12 M of losses vs. €-8 M BS(e) and €-5 M consensus).
In the rest of areas, results were better than expected, mainly in (i) Brazil, with a sharper drop in premiums (-13% vs. -7% expected) but with an +18% increase in Net Profit (vs. -20% BS(e) and -7% consensus). The combined ratio remains stable at around 95% (-0.4pp); (ii) North LatAm, where premiums rose +20% (vs. +7% expected) and Net Profit +73% (vs. +14% BS(e) and +27% consensus). This is explained by the improvement of the CR (91%; -5.3pp). Lastly, in North America, Net Profit (+79%) was fuelled by the sale of a building (+0% excluding it), with a flat performance and in line excluding this impact. The performance in Eurasia (€ 5.1 M Net Profit) is also in line but positive, as it compares with operating losses in 2019. We see an improvement in Turkey and Italy.
Regarding Covid-19, MAP does not expect a significant impact on the 1Q’20 results. For the next few quarters the company expects a rise in claims in health, death and life insurance that will be offset by a drop in the rest, especially motor, due to the shutdown in economic activity. In the medium term MAP does foresee a drop in premiums due to the economic downturn. The biggest impact comes from the valuation of its investments, which have fallen -7% at market value. Thus, along with the currency impact, has meant an -11% drop in equity. MAP does not release information on the impact on the Solvency ratio (S-II 187% in Dec’19), but bearing in mind the impact seen on equity, we estimate that the figure has temporarily come in below the minimum threshold of 175%. As for the dividend, MAP has only mentioned that the decision to pay out a DPS against 2020 results will be made in 2H’20. This changes nothing, as the interim dividend is always approved in September-October and paid out in December. With all this in mind, the company’s figures have performed negatively, once again due to one-offs. The positive part is that the underlying performance seems to be improving little by little. We expect a negative reaction on the share price. BUY. T.P. € 2.20/sh. (upside +35.38%).