Q2-2023 Spotlight: MAPFRE Posts Double-Digit Growth Despite Auto Insurance Woes

MAPFRE’s Momentum Picked Up In 1H-2023 Even Against Economic Headwinds Globally

Spanish insurance group MAPFRE S.A. reported continued business momentum in the first half of 2023 despite macroeconomic challenges, led by double-digit premium growth across major markets and business lines. Net profit declined 6% year-over-year to €317 million, however, as the company battles inflationary pressures especially in auto insurance.

During the first six months of the year, MAPFRE’s revenue rose to over €17 billion, reflecting strong gains in both life and non-life insurance premiums as well as higher investment income. Life insurance premiums jumped nearly 30%, driven by the life savings business in Spain. Non-life premiums increased 11%, with contributions from commercial P&C lines and health insurance partly offsetting auto insurance growth of just 4.4%.

MAPRE’s Results in the U.S.

In the key U.S. market, MAPFRE saw non-life premiums grow 5% to €1.3 billion, driven by auto insurance rate hikes as high as 13% this year to combat escalating claims costs. However, the combined ratio for U.S. non-life insurance deteriorated to 107.5%, with auto insurance specifically weighing on profitability at 108.7%. CFO Fernando Mata said it will take a few more quarters for MAPFRE’s significant pricing actions in the U.S. to fully translate into improved underwriting performance.

Overall, the auto insurance line remains under pressure industrywide from factors like increased accident frequency amid normalizing driving patterns post-pandemic, higher vehicle repair costs due to supply chain issues, and rising claims severity. MAPFRE’s global auto insurance combined ratio ticked slightly lower to 106.2% in the second quarter, but the business still reported losses.

MAPFRE Is Massachusetts’s Largest Private Passenger Auto Insurer

The company maintains a strong position in the Massachusetts auto insurance market, as the largest private passenger car insurers in the Commonwealth with over $135 million in direct premiums written last year. Recent rate increases approved in the state should aid MAPFRE’s underwriting results over time. The company also incurred claims costs of €18 million in the U.S. from the major Arctic Freeze weather event earlier this year.

MAPFRE’s net profit of €317 million decreased 6% compared to the prior-year period. Overall non-life underwriting profitability measured by the combined ratio dipped slightly to 97.1%, as a lower loss ratio was offset by higher expenses. Hyperinflation adjustments in Turkey and Argentina along with increased holding company costs also weighed on bottom-line results.

The auto insurance challenges were mitigated by MAPFRE’s broad geographic diversification. Strength in other markets like Brazil and Iberia (Spain & Portugal) boosted results, with LATAM (Latin America) now the largest contributor to group earnings at €193 million. Iberia saw premiums soar over 20%, with life insurance up 70% and non-life growing nearly 8%.

MAPFRE focusing on profitability

MAPFRE executives said they are carefully adapting pricing, underwriting and cost controls across markets and lines of business to improve technical profitability. The company is also benefiting from higher investment income amid rising interest rates. MAPFRE maintained its dividend payout target above 50% of earnings and confirmed 2023 ROE guidance of 9-10%.

The company reported first half results under the new IFRS 17 and IFRS 9 international accounting standards for the first time, which led to several adjustments related to insurance contract valuation, discounting, and other reclassifications, resulting in a modest net profit decline to €300 million. MAPFRE stated it is committed to enhancing its IFRS disclosures going forward to provide more transparency.

While U.S. profitability remains pressured particularly in auto insurance, the company is taking broad pricing and underwriting actions across markets to combat claims inflation. MAPFRE’s geographic diversification continues to provide resilience as it navigates through this challenging period.