OREANDA-NEWS. Fitch Ratings has affirmed Turkey-based Mapfre Genel Sigorta's (MGS) National Insurer Financial Strength (IFS) rating at 'AA(tur)'. The Outlook is Stable.

The rating reflects MGS's strong position in the Turkish non-life insurance market, its solid underwriting performance, adequate capitalisation and prudent asset allocation. Fitch also views MGS's importance to its ultimate parent, Mapfre SA (IDR: BBB+/Stable) favourably. Offsetting factors include competitive pricing within the Turkish non-life insurance market and the potential risks, in Fitch's opinion, associated with MGS's rapid growth within the Turkish market over the past five years, relative to peers.

KEY RATING DRIVERS
MGS has a 6.5% share of the Turkish non-life insurance market (end-2014). The historically low technical profitability of Turkish motor lines, which make up around 50% of MGS's gross written premiums (GWP), has been further pressured by the adverse development of bodily injury claims, lower car sales and the devaluation of the Turkish lira in 2015. At 1Q15 the Fitch-calculated industry combined ratio deteriorated to 110% (end-2014: 100%). As an important market player, MGS's underwriting performance has deteriorated in line with the market. Its Fitch-calculated combined ratio worsened to 102% at 1H15 (end-2014: 97%), although this continues to compare favourably with the wider market's performance.

The growth of MGS's gross written premiums (GWP) slowed to 14.5% y-o-y in 1H15; between 2010-2013 annual growth was rapid, averaging 50%. The slowdown was primarily due to a decline in car sales and fierce market competition. Fitch is cautious regarding the effects of rapid growth, as it may be associated with an increased risk of adverse underwriting, pricing and reserving.

MGS's regulatory solvency ratio remains above 100%, recovering to 111% at end-2014. It had temporarily dipped to 99% at end-2013, below the required minimum of 100%, as the amount of business written briefly exceeded the availability of capital needed to support it under regulatory requirements. Fitch considers MGS's capital as adequate for its rating as the Turkish solvency regime uses a risk-based capital measure that is much more onerous than a typical Solvency I calculation.

The agency views MGS's asset allocation as prudent, with the majority of assets held in cash and cash equivalents or investment grade Turkish treasury and corporate bonds.

MGS's rating includes a two-notch uplift from its standalone rating level of 'A+(tur)', reflecting the benefits from its ownership by Mapfre SA, including expertise in corporate governance, operational support and risk management. Fitch believes that Mapfre SA would provide capital support to MGS, should it be required.

RATING SENSITIVITIES
Key rating drivers that could lead to a downgrade include a decline in the regulatory solvency ratio to below 100%, a deterioration in underwriting profitability (with the combined ratio above 100% for an extended period), or a significant deterioration in MGS's competitive positioning in Turkey (decline in market share to below 4%). A decline of MGS's importance, in Fitch's assessment, to Mapfre SA could also lead to a downgrade.

An upgrade is unlikely in the near-term, given MGS's high rating on the Turkish national scale and given that its small contribution to Mapfre SA precludes an increase in the rating uplift from its standalone profile.