Mapfre Middlesea plc (MMS) is the parent company of the Mapfre Middlesea Group, which is the largest insurance group in Malta. The Group operates in the insurance sector and conducts business in both the life and non-life market.
The Group’s general business comprises all of the non-life classes, including Motor, Home, Health, Marine, and General Liability. The long term business comprises both life insurance and investment services, and is carried out through MAPFRE MSV Life plc, which is a 50/50 joint venture with Bank of Valetta plc. MMS’s major shareholders are MAPFRE Internacional S.A. and Bank of Valetta plc each holding 54.6 per cent and 31.1 per cent shareholding respectively, with the remaining shares publicly traded on the Malta Stock Exchange.
The non-life insurance, also referred to as the general insurance captures any type of insurance other than life insurance. While life insurance includes life policies and investment services, the non-life insurance may cover people, property or legal liabilities, such as a financial guarantees. An important metric in analysing the non-life market is the Combined ratio, which aggregates the Expenses/Net Premium Earned ratio and the Loss/Net Premium Earned ratio. The Group’s general business combined ratio stood at a healthy level of 92.9 per cent in FY 2018 (FY2017: 92.3 per cent). This is in line with MMS’s long-term target of 96 per cent (a combined ratio of less than 100 per cent indicates a profitable business).
The Group’s gross premiums written from the general business has experienced a compounded annual growth (CAGR) of 19 per cent during the last four years. In FY 2018, MMS’s main growth in gross premiums written was recorded in the accident and health segment with a growth of 23.2 per cent, followed by general liability with a growth of 12.2 per cent. Overall gross premiums written increased by 11.4 per cent in FY 2018.
The life sector of the Group consists of investment services and life insurance. The investment services represents the bulk of profitability, contributing to circa 90 per cent of the total gross premiums written. In the last four years, MMS’s gross premiums written from the long-term business increased by 20 per cent CAGR. This is mainly attributable to the Single Premium Plan, which remains the largest driver of the Group’s profitability. As per the June 2019 interim financials, the long-term gross premiums written from the long-term business decreased by 6.9 per cent on comparative basis.
Recently the research team at Calamatta Cuschieri initiated coverage on Mapfre Middlesea plc, with a Hold recommendation and a 1-year price target of €2.11.
We expect the Group to remain profitable in the general business and that it will be able to maintain its long-term combined ratio target of 96 per cent. We assumed an overall growth rate of seven per cent in the gross premiums written for FY 2019 and FY 2020, a lower rate than previously achieved, in line with a projected slow down growth of the local economy. Despite a reported drop of 6.9 per cent in the long-term gross premium written as at the interim financials of June 2019, we expect the demand for the Group’s investment services to remain resilient, in lieu of Malta’s high savings ratio, as claimed by the Group’s management.
MMS is currently trading at a book value per share of €1.00 based on FY 2018 and at a price to book (P/B) multiple of 2.2x. The P/B multiple of MMS is on the high side when compared to other European peers such as Allianz SE (P/B: 1.3x) and Zurich Insurance Group AG (P/B: 1.9x), however in our opinion, this is sustained by the Group’s higher Solvency Capital Requirement (SCR) coverage ratio of 270.4 per cent, with peers Allianz SE and Zurich Insurance Group AG standing at 229 per cent and 216 per cent, respectively.
The strong solvency ratio should enable the Group to maintain a high level of dividend distribution, where in the last two years this exceeded the level of profitability. MMS is currently trading at a net dividend yield of 4.4 per cent and at an anticipated forward net dividend yield of 4.7 per cent. Nevertheless, we remain cautious that a dividend pay-out ratio equal to or exceeding the 100 per cent is not sustainable in the long-term. Consequently, we expect MMS shares to trade at a lower P/B multiple in line with European peers, once the Group’s SCR coverage ratio decreases to the level of its peers. Upon taking the above factors into consideration, we rate the shares a Hold.
Disclaimer: This article was issued by Rowen Bonello, research analyst at Calamatta Cuschieri. For more information visit www.cc.com.mt. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Analyst views to BUY, SELL or HOLD on particular stocks or instruments are related to the stock/instrument being reviewed and are not to be treated as personal recommendations to investors, which are only issued following suitability assessment.