Interview: Antonio Huertas, Mapfre - reaping the rewards of change

After a tough period in terms of the company’s performance that included a restructuring of parts of its business, Mapfre is betting on technology and further geographical diversification to deliver a positive future for the company—as it also admits its reinsurance unit has limited growth potential.

Candid and unflinching, Antonio Huertas, the chairman and chief executive officer of the Spanish insurer, admitted at the company’s annual general meeting in Madrid in March that last year was not as good as it could have been.

“In hindsight, there are things we could have done better,” Huertas said.

He explained that a number of factors beyond the company's control including hurricanes, earthquakes, trade wars, hyperinflation and turbulent markets hit its performance in 2018. Net earnings fell by almost 25 percent but, Huertas said: “It is only when we are demanding with ourselves that we can improve and overcome the challenges we face.”

The company’s net earnings fell to €529 million ($600 million). Low interest rates and currency depreciations cost it around €17 million ($19 million), while catastrophe events were responsible for €97 million ($110 million) in costs to the reinsurance business. The restatement of results for subsidiaries in Argentina also produced a negative impact of €18 million ($20 million).

Gross written premiums (GWP) fell by 4 percent to €22.5 billion ($25.5 billion) in 2018. Non-life GWP were down 6 percent to €17 billion ($19 billion), while GWP for Mapfre’s life business were up 2.8 percent to €5.4 billion ($6 billion) in 2018.

“There is no doubt that 2018 was a challenging year for Mapfre. We have once again experienced major catastrophe impacts, we lost over €1.4 billion ($1.6 billion) in foreign currency premiums and €34 million ($38.5 million) in earnings, but even so, we were able to exceed €700 million ($794.5 million) in operating earnings,” Huertas said.

He added that it was a deliberate decision to be more careful and partially write down some goodwill to strengthen the company’s balance sheet. And he stressed that the insurer made good on its commitment to approve a shareholder dividend of €0.145 ($0.16) per share for that 2018 period. This equates to €447 million ($507 million) and brings the total paid to shareholders over the past three years to €1.34 billion ($1.5 billion).

The rewards of change

With 2018 behind it, the company is keen to reap the rewards of changes made last year. Once of these was restricting its Global Risks business and integrating it into Mapfre Re, its reinsurance unit.

Speaking to Intelligent Insurer, Huertas says this move “was the result of a normal evolution, a way of managing capital more efficiently”.

He points to the relatively limited growth potential of the mature Mapfre reinsurance business and the fact Global Risks “is small compared to our competitors” as driving forces behind the restructure.

“We decided that since we had a very large reinsurance business in Mapfre Re, and Global Risks was operating in a very specialised niche, we should incorporate a lot of the customers into Mapfre Re.

“Global Risks would then be focused as a company to provide added value to Mapfre customers in Spain and Latin America, and in the future, the US. As Mapfre grows in other countries, Global Risks will continue to support customers,” Huertas says.

“Mapfre Re can obtain better disaster protection that it passes on to Global Risks. We have an appetite for risk, we will continue to grow, and the new structure for Global Risks, with the support of Mapfre Re, can whet the risk appetite of companies in Brazil, Mexico, Chile and Ecuador and in all other countries where we intend to grow in the insurance of industrial risks.

“In 2017 the results were not good but this was result of the hurricanes in the Caribbean, earthquakes in Mexico and other natural disasters. Of course this is part of the risk, but there was too much risk concentration for such a small company.

“With Mapfre Re incorporated, the result is a much larger company, which can handle risk better.

“Mapfre Re has a solid client base and enjoys an excellent reputation. As such, if market conditions improve as expected, it will continue to grow, maintaining in turn its excellent efficiency ratios,” he adds.

“To achieve this we will take advantage of its greater capitalisation and new underwriting teams that have been recruited following the restructuring of Global Risks, once the operations has been authorised by the appropriate authorities.”

Diversity is key

Huertas believes Mapfre has a growing resilience due to its growing diversity—by lines of business and geography.

In 2018, its premiums were spread between automobile (28 percent), general P&C (25 percent), reinsurance (22 percent), life (20 percent) and health (5 percent).

Premiums by business area show insurance accounted for the largest proportion, with around three quarters of the total at €18.7 billion ($21 billion). Reinsurance made up around a fifth with €3.7 billion ($4.2 billion) and Global Risks and Asistencia made up the remainder, with €1.1 billion ($1.21 billion) and €911 million ($1 billion) respectively.

Geographically, the company’s premiums by region showed Iberia was responsible for the biggest chunk with €7.6 billion ($8.6 billion), followed by Brazil with €3.9 billion ($4.4 billion). North America accounted for €2.4 billion ($2.7 billion), Eurasia €1.7 billion ($1.9 billion) and Latin America south and north (excluding Brazil) €1.6 billion ($1.8 billion) and €1.3 billion ($1.5 billion) respectively.

Setting out Mapfre’s strategy for the next three years (2019 to 2021), Huertas makes it clear that “profitability prevails over geographic footprint”.

“I have stated publicly that we are in the countries in which we want to be present. But that is not entirely accurate, as we have begun a process of important divestments; in the past year we have exited five states in the US, and we may exit more in the future if we do not see a path to medium-term profitability,” he explains.

Data shared with Intelligent Insurer in March 2019 show that the company had retained offices in six US states and has operations in 14 states, with a continuing stronghold in Massachusetts.

“Over the next three years we will continue monitoring our activities and quarantine businesses that do not fulfil the principle of profitable growth,” Huertas says.

“In Latin America Brazil is a very important market as it accounts for 18 percent of the group’s premiums and 57 percent of the region’s premiums, while it also accounts for 41 percent of the insurance market in the region.”

After a restructuring agreement of its strategic alliance with Banco do Brasil, in which Mapfre bought its property and vehicle portfolio, Mapfre has achieved “a certain independence in the business” which it will use to develop other channels and reach other agreements, Huertas says.

“We are clearly focusing on this new structure in the country. The objective is to conclude the reorganisation of this structure which was approved last December and seek to improve operational and technical aspects. We want to grow in automobile which accounts for 67 percent of our portfolio,” he says.

He emphasises the potential for growth in Mexico (responsible for 11 percent of Mapfre’s premiums in Latin America) in the automobile and life insurance businesses, and Peru (responsible for 7 percent of Mapfre’s premiums in Latin America).

“In the Latin America market more broadly better economic growth is expected in 2019, rising about 2.2 percent driven by strong growth in Brazil and Mexico as well as the recovery of the Andean countries,” he says.

Advances in technology and the opportunities and risks they bring are not lost on Mapfre.

Huertas says digital business premiums grew by 10 percent in 2018, while they are forecast to grow 51 percent between 2019 and 2021.

Jaime Tamayo, CEO of Mapfre’s International Regional Area, adds: “We live in a global, digitised world that is interconnected. We do not talk about digital transformation any more, we just talk about transformation—if it’s not digital, it’s irrelevant.

“Customers, not only millennials or generation Z, have mobile phones and smartphones or tablets and we all access all services digitally.”

Tamayo says the entry of new players into the business has also caused them to rethink.

“There are no barriers, there are no longer technology companies or banks or insurance companies.

“Now technology companies want to be banks and banks want to be insurance companies and insurance companies want to offer financial services and technological services, so this is a complex world. That means more risks and requires more caution.”

In response, Mapfre has been developing advanced analytics and real-time predictive models to accelerate business processes, boost agility and provide more accurate decision-making.

Investing in innovation

Huertas says the insurer has plans to “reinvent” its automobile insurance in response to new trends such as autonomous vehicles, telematics and other market innovations.

The Mapfre Open Innovation programme, launched at the annual general meeting in 2018, is supporting ‘intrapreneurship’ with creativity workshops in Spain, Peru and the US.

From this process, a pilot for a parametric index for agricultural insurance, which will be supported by data from the internet of things has been developed. Another innovation involves a prototype to use drones to collect data to build 3D terrain models and evaluate risk using artificial intelligence.

Cesvimap, the insurer’s innovation smart lab, is already using virtual reality tech to train auto claim assessors more quickly and easily. This part of the business is due to integrate with Open Innovation to provide greater value in developments in automobile and personal mobility.

The company has also set up Insur_space in Madrid, a funky workspace designed to promote collaboration between disruptive startups, institutions linked to innovation and Mapfre. It supports startups with accelerator and adoption programmes.

Huertas says that the company’s technology will progress towards more open, analytical, flexible and global technology that is easily scalable in different operations, including global rollouts in the future.

“In advanced analytics we are fully behind data. We are developing a platform that will allow us to move from making decisions based on structured information, which is how we traditionally did it, to incorporating new sources of unstructured information. This will facilitate understanding and attending to the needs of our customers more effectively,” he explains.

He adds that the transformation process the company has completed so far “has not yet been fully reflected in our accounts”.

“We want to create more value for the shareholder, generating a return on equity of an average of 10 percent for the three-year period.

“We will grow sustainably and prudently, reaching €30 billion ($34 billion) in revenues by 2021 or having achieved average premium growth of 5 percent during the three years. We will achieve an average combined ratio of 96 percent in our non-life business,” he concludes.