The continued deterioration of European credit has reached Puerto Rico’s insurance market, with the recent decision by reputed insurance industry rating agency, A.M. Best to place the ratings of MAPFRE PRAICO Group and its members under review with negative implications.
The New Jersey-based watchdog placed Spanish MAPFRE PRAICO Group’s financial strength rating of A (Excellent) and issuer credit ratings of “a+,” including wholly owned subsidiary MAPFRE PRAICO Insurance Company (PRAICO), MAPFRE Preferred Risk Insurance Company (PRICO), and an affiliate, MAPFRE Pan American Insurance Company (PAICO), whose businesses are significantly reinsured by PRAICO. All the above companies are headquartered on the island.
These rating actions follow a downgrading of the ratings by A.M. Best Europe of MAPFRE RE, Compañía de Reaseguros, S.A., a key subsidiary of MAPFRE S.A. in Spain, due to their exposure to investments in several peripheral eurozone economies, in particular Spain and Portugal.
“This is compounded by MAPFRE SA.’s exposure to commercial property in Spain through its investment holdings. A.M. Best’s rating actions on MAPFRE RE and other European (re)insurers reflect their exposure to the continued deterioration of the sovereign creditworthiness of several eurozone countries and the negative economic outlook for the region,” A.M. Best said.
“The rationale for taking rating action at this point is largely attributable to the current heightened level of credit and liquidity risk for insurers operating within the eurozone countries—most notably Italy and Spain,” the agency further noted. “The perceived strain on the economies of these countries and companies operating within their borders is growing rapidly with very little evidence of a solution being formulated to address near-term concerns.”
MAPFRE PRAICO Group and its members will remain under review with negative implications while A.M. Best examines these companies’ exposure to a prolonged adverse economic environment within the eurozone.
“Of particular concern to A.M. Best is the exposure to Italy and Spain’s sovereign bonds and the potential for contagion into other asset classes; particularly holdings of European bank securities. In addition, A.M. Best will assess the likely impact of a prolonged financial crisis and recessionary environment on these carriers’ market position and ongoing business operations,” the agency said, adding upward rating actions are unlikely at this point.