Mapfre, S.A. (MAP) Earnings Call Transcript

Good morning, and welcome to MAPFRE's activity update for the third quarter of 2026. This is Leandra Clark, Head of Investor Relations and Capital Markets. Thank you very much for joining us this morning. We are pleased to have with us Jose Manuel Inchausti, Vice Chairman of MAPFRE, who will open the presentation with some remarks and an overview of recent business trends. He will be followed by Jose Luis Jimenez, our Group CFO, who will review the main financial highlights. And Felipe Navarro, Deputy General Manager of the finance area, who will walk us through the balance sheet. As a reminder, we report IFRS financial information on a half year basis. The information in this activity update is prepared under the accounting policies applicable in each country, which generally do not apply IFRS 17 and 9. You may submit your questions at any point during the call, using the Ask A Question link and we will address them during the Q&A session at the end of the presentation. I will now hand the floor over to Jose Manuel Inchausti.

Thank you, Leandra. Good morning, everyone, and thank you for joining us today. We are pleased to report that MAPFRE has delivered solid results for the first 9 months of the year. Net profit reached EUR 924 million, reflecting excellent performance across our core markets, Iberia and MAPFRE RE were important contributors to earnings growth while North America and Brazil also reported higher profit. This is supported by a diversified and resilient business model as well as technical discipline. MAPFRE continues to benefit from a robust capital position, which was recently recognized by our main rating agencies. We have a solid balance sheet, a high-quality investment portfolio and a prudent approach to reserving. This gives us the flexibility to keep investing in the business while maintaining a conservative approach to capital and risk. We also remain strongly committed to shareholder value creation. I am happy to announce that the Board of Directors has approved an over 14% increase in the interim dividend to EUR 0.08 per share marking the sixth consecutive increase in the last 3 years. The total paid during 2026 will reach EUR 0.19 per share, up over 15%. Our resilience in a challenging market environment is allowing us to continue to move forward with our strategic growth priorities. The acquisition of Safety Insurance, which continues to progress as planned, will further strengthen our presence in the United States and enhance our long-term growth prospect in this strategically important market. Following the completion of the antitrust review process, the remaining key milestones are the extraordinary shareholders meeting of safety scheduled for November 3, and the approvals from the Massachusetts regulator. I would now like to spend a few minutes on the key figures, which show that we are well positioned to meet the updated profitability targets an ounces at the March AGM. As we have commented during the year, the growth target is more challenging but premiums are still up over 2% with positive tailwinds from currencies. The Non-life combined ratio stands at 93.5% within our target range of 93% to 94%. This is an excellent level, keeping in mind that there has been higher frequency of weather-related and nat cat events during the year. The most relevant was the earthquake in Colombia in August. The net results is up close to 12%, reaching EUR 924 million, and the ROE stands at just under 13%. We maintained a strong solvency ratio of nearly 209% as of June, above the midpoint of our target range. I will now hand over to Jose Luis, who will walk you through the details of the third quarter.

Thank you, Jose Manuel, and good morning, everyone. Let me now turn to the main highlights of the profit and loss account, now focusing on local GAAP. Starting with Non-Life, premium reached EUR 17.5 billion, up 1%. The combined ratio remains strong at 93.5% despite the EUR 83 million net impact of the earthquake in Colombia, which affected both the local insurance entity as well as MAPFRE RE, but remaining within the group's large loss budget. There have been a few other large events during the year, including the storms in Portugal and Spain in February and the Venezuela earthquake in June. . The technical result reached EUR 870 million, down 8.8%, more than compensated by financial income, which increased over EUR 210 million, supported by high portfolio yields and active portfolio management. We have been adjusting the risk profile of our portfolios due to the current market situation, especially this quarter. And gross realized gains amounted to EUR 170 million at September over EUR 90 million more than in 2025. The Non-Life business result reached EUR 1.6 billion, up over 8.3%. Turning now to the Life business. Premiums reached EUR 5.3 billion, growing 5%. Life savings grew despite the demanding comparison due to the issuance of significant corporate policies in Iberia in 2025. Excluding this, life premiums are up 12.6%. Life Protection continues growing, especially in Mexico and [indiscernible] LatAm with a combined ratio under 88%. Gross realized gains reached close to EUR 30 million, up EUR 40 million year-on-year. The result of the Life business reached EUR 532 million, up 7%. Other business activities mainly include holding company items and financing expenses, which have increased due to the early refinancing in January and June in anticipation of rising yields. Hyper inflation adjustments are up EUR 10 million compared to last year, mainly due to a higher adjustment in Turkey. Let me now take you through the performance of the different regions and business units. Overall, Iberia delivered solid performance. The net result reached EUR 430 million, up 19%. Total premiums up 1%. However, this comparison is distorted due to the large corporate policies issued in 2025 in Life and Non-Life. Excluding this, total premiums are up nearly 7%. Non-Life premium growth is supported by Accident and Health as well as motor. General P&C premiums were down 2%, affected by nonrecurring transport issuance in 2025. Excluding this, premiums will be up over 2%. Life premiums are growing around 18%, excluding large corporate policies with solid trend, both in savings as well as life protection. The Life result was impacted by an uptick in the combined ratio, although still at very strong levels as well as one-off tax adjustment of close to EUR 11 million. The Non-Life combined ratio improved almost 2 points to around 94%, and the return on equity is now 15.6%. In Motor, earnings has doubled year-on-year to EUR 200 million while the combined ratio is down 2.5 points to 96%. During the year, we have maintained a prudent approach to reserving as we carefully monitor inflation trends increasing reserve during the year, especially in the third quarter. This total increase in recept had between a 2 and a 3-point impact on the claim ratio at 9 months. Premiums are up close to 1%, supported by a 3% increase in the average premium. The big fleet is down only 1.2 points year-to-date, reflecting a somewhat improved trend thanks to selective profile-based tariff adjustments. The [indiscernible] business is also delivering with an outweight combined ratio around 96%. In general, P&C, the combined ratio improved by close to 3 points despite the several weather-related events during the year. The financial result is supported by high portfolio yields and active portfolio management. Net realized gains amount to EUR 52 million over EUR 20 million more than in 2025. Brazil continues to be an excellent contributor to profitability. The net result reached EUR 203 million, up 2%, and the return on equity stood at an excellent 24%. And Premium surpassed EUR 3.3 billion, up 1%. The currency continued to be a tailwind, up 5.5% year-on-year at September. Growth at cost and exchange rate is down 4%, with high interest rates still impacting credit linked insurance, mainly Agro life protection, while other general P&C lines are contributing positively to growth. The combined ratio stand at under 76%, up 3.6 points affected by the adverse weather seen in the South Central region of the country during September which affected Motor, Homeowners and agro. General P&C remains supported by the excellent profitability of Agro, with a combined ratio still below 60%. And in line with previous quarters despite the storms. Regarding the Life production business, earnings are up 11% with a combined ratio of 84%. Other LatAm is reporting solid growth with premiums up close to 8% to EUR 4.5 billion, supported by strong life and accident health volumes. The property business continues to be affected by lower insurance rates as well as the impact of exchange rate movements as most of its policies are denominated in U.S. dollar. The combined ratio stood at 101%, up 5 points, driven by general P&C and motor, affected by higher frequency of weather-related and CAT events. The most relevant was the earthquake in Colombia in August. There were also several smaller events across the region. This is part of the normal volatility of our diversified portfolio. In Mexico, premiums are up 13%, with Life growing 15% and Accidental Health growing close to 40%. The result stands at just under EUR 20 million. The combined ratio experienced an uptick of 5.8 points, pressured by the increase in claim costs due to the change of the BIT treatment for insurance companies, which will continue to be offset by tariff adjustments. In Peru, premiums reached almost EUR 700 million with a net result of EUR 42 million, both growing at nearly 9%, boosted by life, health and accident. In Colombia, premiums are down 2.6% to EUR 414 million. The combined ratio rose by 2.7 points to 10.8%, due to an overall increase in claims experience, especially motor as well as the impact from the heathquade, which had a net impact of EUR 7.5 million. The [indiscernible] in the country amounted to EUR 10.8 million. North America has reported a record net result of EUR 112 million, up over 12% year-on-year. This is the first time North America has set the EUR 100 million mark at September. This result reflects the strength of our U.S. operation where we had plus 24% increase in net profit. Premiums declined by 4%, partly affected by the depreciation of the U.S. dollar. In local currency, premiums were down just 0.7%. In the U.S., premiums are up around 2% in dollars and we have gained some market share. In Puerto Rico, premiums were down reflecting market condition and nonrenewal of some large policies. The big fleet is showing signs of recovery reaching over 1.2 million vehicles, up 0.5% year-to-date. The combined ratio continued to improve, decreasing by 0.8 percentage points to 94.9%. In Motor, the combined ratio improved by 1.3 percentage points to 96.3% while General P&C stood at 86.9%, which is up close to 4 points but is still at a very good level. MAPFRE includes both reinsurance and Global Risk premiums reached EUR 6.3 billion, slightly down, both businesses continue to be affected by the reduction in market rates. The combined ratio stands at 95.3%, up 1.5 points. The estimate net impact of [indiscernible] Colombia is EUR 75 million. Other relevant events during the year were the storms in Portugal and Spain last February as well as the [indiscernible] in Venezuela in June. Reserve remain in the upper end of the confident interval, representing a 1.5 point impact on the accumulated combined ratio. No changes have been made to this reserve during the quarter. And we will review the reserving situation in the fourth quarter after seeing the development of NatCat events and secondary Paris. The non-life financial result was up 68% supported by solid investment yields and higher net realized gains of EUR 50 million compared with net realized losses of EUR 4 million in 2025. In EMEA, growth is mainly supported by Malta's Life business, but the other markets are in as well, offsetting the 12% currency depreciation in Turkey. Results and the combined ratio continued to be impacted by reserve strengthening in Italy, leading to a EUR 2.4 million loss for the region. Although we are seeing a strong turnaround in Germany, where the combined ratio remains below 100%. In Turkey, the business remained conditioned by hyperinflation adjustment and a higher claims experience. Financial income continued to benefit from high interest rates in the country. I will now hand the floor over to Felipe to discuss the group's balance sheet and capital related topics.

Thank you, Jose Luis. Before discussing funding, let me highlight the group's strong capital position. Shareholders' equity stands at EUR 9.5 billion, increasing over 5% during the year with positive contributions from retained earnings and currency conversion differences, primarily driven by the appreciation of the U.S. dollar and other Latin American currencies, especially the Brazilian real. Ahead of the closing of the safety acquisition and subject to market conditions, we expect to issue a combination of Tier 2 capital and senior instruments. For the senior, we are targeting the short end of the curve with tenors ranging up from 3 to 5 years. For the Tier 2, we are still evaluating the potential structure and currently have a preference for 11 non-call 10 or a 15 on structure. Keep in mind that the final tenors and structures of both transactions will depend on the prevailing market conditions at the time of issuance, and we are carefully monitoring markets. Leverage stands slightly above 21%, still roughly in line with December. The solvency ratio stands at close to 209% as close of June 2026. Total assets under management stand at over EUR 70 billion, growing close to 10% year-to-date. Our investment portfolio amounts to close EUR 47 billion, reaching over EUR 51 billion, including unit linked. Regarding asset allocation, it has not materially changed. As part of our portfolio diversification strategy, we have been gradually reducing our exposure to Spanish govies and reinvesting in the rest of Europe, including Belgium and Germany. Spain, nevertheless, remains our largest exposure. Regarding the French govies, we have EUR 2 billion on our balance sheet, which is a very low share of our fixed income portfolio, around 6% in line with other European insurers. In addition, we have close to EUR 400 million related to guaranteed funds, which are sold through our mutual funds business. These investments are relatively short duration with a 50% of the bonds maturing in the next 2 years. As is the case in other development economies, we share the view that market volatility is not a major risk and default risk appears very remote. We are also seeing value in high-quality short-dated corporates, given the resilient behavior in this volatile market environment. Alternative investments remained a small share under 4% in the investment portfolio. Moving on to the asset management businesses. They continue to deliver strong growth, reinforcing our position as a benchmark in financial planning with third-party assets reaching EUR 19.7 billion. Mutual funds are up almost 33%, largely driven by Brazil, while Spain also delivered double-digit growth. Let me now turn to our actively managed fixed income portfolios, which stand at nearly EUR 23 billion. The remaining EUR 12 billion is allocated to cash flow or duration match portfolios, minimizing interest rate risk. In the euro area, yields are higher year-to-date, while duration is lower, reflecting reinvestments at short-term maturities. In our other main markets, in Brazil, the changes in yield and duration reflect higher location to select linked investments. In North America, the yield is slightly up and duration is down. Our portfolios remain well positioned to navigate the ongoing market volatility. I will now hand the floor over to Jose Manuel to make a few closing remarks.

Thank you, Felipe. Before we conclude and start the Q&A session, I would like to highlight some key messages. We have delivered another set of solid results. The diversification of our business model has allowed us to continue achieving profitable growth supported by a strong underwriting discipline, sustained business momentum across our main markets and a robust financial result. These achievements reflect our resilience and successful execution of our strategic priorities. Our commitment to shareholder remuneration remains stronger than ever. The 14% increase of the interim dividend reinforces our track record of creating value for shareholders while maintaining a strong and sustainable capital position. We remain confident about our outlook. We are entering the final stretch of our current strategic plan, having made significant progress towards our objectives, both financial and operational. At the same time, we have been working through the year of the design of our upcoming 2027, 2029 strategic plan, which we will announce next year. This plan will build on the strengths of the group and the opportunities we see ahead. We remain focused on profitable growth, combining a strong organic development with selective inorganic opportunities. In this regard, the acquisition of Safety Insurance will clearly strengthen our position in the United States and further enhance our long-term growth prospects. We are well positioned to take advantage of other new opportunities when they arise. We have a clear conviction that AI will be a transformative force for the insurance industry and the digital economy enhancing operational efficiency and unlocking significant long-term growth opportunities. The acquisition of almost 40% stake in to which we announced this summer is proof of our commitment to innovation and expanding our digital business. In summary, we are closing the first 9 months of the year with solid results an attractive value proposition for our shareholders and a clear road map for future growth. Before we begin with Q&A, I would like, on behalf of MAPFRE to express our deepest condolences and solidarity with all those affected by the tragic train accident in Toledo. Our thoughts are with the big teams, those who have been injured as well as their families love ones in this very difficult time. Thank you for your attention, and I will now hand the floor over to Leandra for the Q&A.

Thank you, Jose Manuel. Although most of you are already familiar with the process. As a reminder, you can use the Q&A tool on the bottom of your screen. We will organize the questions by topic and answer them as time allows. And now let's start with the first group of questions, which is regarding the business in Brazil. We have received a few questions from -- regarding the combined ratio in Brazil for non-life in particular in motor business. [ Nimra ] from Bank of America, Maks from JB Capital and [indiscernible] would all like to know what is behind the increase in the combined ratio on the quarter, both in Motor and General P&C.

Okay. So thank you very much for your questions. Regarding Motor, it is true that the combined ratio has deteriorated to about 100% with competition increasing and no material near-term improvement expected given interest rates environment. But this still is a profit-generating segment. In the case of the combined ratio, we have to say that we are seeing an increase on climate-related events in the radio, especially on the south but also we have to see, especially on the coming quarters, how El Nino performs. So far, we will say that this pad, we have had some [indiscernible] during the region during the last quarters and especially as well in the month of October, I think the remaining quarters a month we have to see how the El Nino evolves. So probably this is something that probably we will see more in detail on the fourth quarter or the first 2 quarters of next year. But nothing extraordinary beyond this.

Thank you, Jose Luis. I think we just had one follow-up on that question regarding the Motor business. If we've changed our strategy, are we prioritizing volume over profitability?

No, the -- thank you very much for the question. Yes, we continue exactly with the same strategy in Brazil. There is no prioritization of the volume against profitability, and we continue dealing with the market, which is very competitive and where we are playing [indiscernible]. Thank you very much.

Thank you very much. We've also received a few questions regarding the macro outlook Brazil, specifically Nirat from Bank of America is asking if the recent political and economic developments change our outlook for the business.

Not really. We don't make comments on the political arena. But I think Brazil is an incredible economy. We have very good profits for the region for the coming years, probably once the lesion has passed and we get more stability, we see there is a lot of margin to improve rates at the [ SELIC ] are above 30%, and once the new administration take place, probably there is room to reduce interest rates and more activity probably will help us on the insurance side. So the prospects for Brazil are quite positive.

And [ Nimra ] would also like to know, are we expecting any impact on our shareholders' equity from the change in bond values in the Brazilian market?

No, not really. We have a very short-term duration, and it is not going to impact significantly any kind of any change there.

Thank you, Jose Luis. Thank you, Felipe. Moving on to the Life business, Juan Pablo from Santander would like to know, he's seen very strong performance in the quarter for Brazil, both in Life savings and life protections. Could you give some additional color on these developments?

You mean in Brazil?

In Brazil. Yes.

I think the Life business performing extremely well. And also, we have to say that all the business related to savings, especially I would say, on the mutual fund side is performing as well, incredibly well, probably the rates of growth, if I want is around 30%. Protection, life protection is working well. Savings is working well. So we are confident that, that part of the business will continue performing as expected.

Thank you. I think we're going to move on now to [indiscernible]. We've received a few questions regarding the cat events during the quarter. Specifically, Carlos Peixoto from Caixa BP has asked. The earthquake impact in [indiscernible] was EUR 75 million. This means that the third quarter profit would have been EUR 176 million adjusting for this impact. Do you see this as a sustainable level? Were there a provision releases to offset the earthquake impact? And in a similar note, we received an additional question from Nimra in Bank of America, asking for the same with regards to the combined ratio. So I think it's more or less the same question.

First of all, there is no provision release during the quarter, it was more the nat cat budget for the group. And it is true that so far, I mean, the nat cat events during the year has been more smooth compared to previous years. But it is true as well that this phenomenon, they call El Nino or [indiscernible] probably is starting to affect with more secondary perils. So we are seeing a low impact, but more frequency on weather-related events during the region. It is true that we have seen earthquakes in Venezuela and Colombia. It is true that in October, we have as well the earthquake in Panama. But also, we have seen more raining, we have seen fluids and probably, we should expect as well in some parts of the region as well rods. So this is something that we have to wait and see how it evolved during the coming months. But expectation for El Nino today high. Let's see what happens in the [indiscernible].

And just to -- sorry, just to remark that the MAPFRE RE results must be considered in an annual basis because the nat cat events are shared along the year. We don't know which one would be affecting in which quarter. So I think it should better to see the total annual result to extract conclusions.

In just 2 more follow-up questions on the MAPFRE reinsurance business. The first one comes from [indiscernible] at UBS. And she would like to know how we feel about the reserve prudence that we've set aside this year. As a reminder, there was EUR 50 million in the first quarter. We didn't release this in Q2 nor in Q3. So what should we expect looking into the rest of the year and going into 2027, considering this outlook for the Nino, as we've mentioned?

Well, we have to say that we prefer to be extremely prudent. As with at MAPFRE, we ran the business. First, it is true that we are just in the middle of the hurricane season, probably until the end of November, we have to wait and see if there is any developments on this side. Talking about nat cat events, it is true that when you have El Nino, traditionally, you have lower frequency in terms of hurricanes. But even if you only have one and is, I don't know, it could be a big event. So in that side, we prefer to wait to see how the next month evolves. And we decide at the end of the year how to proceed.

And then moving on to more growth-related topics, Max at JB Capital. He's asking -- well, he's observed that the premiums at MAPFRE RE were growing even in the face of this softening market. What's the reason behind this growth? And what's your outlook?

And really, we are extremely happy with the development of the business, not just because of the lower big events that we have suffered during the year, but also in the new activities in the new lines of business that the unit has engaged during the last few years. One of the reason of this growth is the opening of the new branch in India. So we are starting to collect the first results from that unit. But also as we have acquired close relicensip with our customers, we tend to believe that even in a tough market as the one that we are dealing with, we can't perform well.

Thank you, Jose. And we've received one final question on MAPFRE RE. It just came in. We're -- it's from UBS, [indiscernible]. She'd like to know if we could consider the third quarter of this year as a normal quarter and as a starting base for 2027 margin outlook?

It was -- thank you very much for the question. I think that it was a good quarter for MAPFRE RE. I mean the -- only the big impact that we received from the earthquake in Colombia, that was the only significant one. We kept the level of reserves that we've been reinforcing the during this quarter, and I think that it could -- we could consider the third quarter as a very good quarter for the company.