Economic activity is showing signs of a return to pre-COVID levels: high inflation has been added to the market correction now underway, so companies must prepare for this scenario. This is where the insurance industry comes into play, and according to Fernando Mata, MAPFRE’s CFO, it has historically behaved as “a mitigator of inflation, as a buffer or a sponge, because the cost increase derived from that rise in prices is not transferred to the insurance product or to the end customer.”
During the XIV Forum of “Companies that Create Value for Shareholders,” held by EL ECONOMISTA and whose participants also included his counterparts from Acerinox, Ferrovial, and Grifols, he noted that this anticipated return to normality can already be seen in the increased driving activity. This will lead to a return to pre-pandemic accident levels, and therefore, higher vehicle repair costs, although he explains that MAPFRE has mitigating elements to control the average cost of claimable events. In fact, based on the events of recent years, and supported by administrative processes and more efficient technology, he estimated that “the cost of car insurance will be lower than inflation.”
MAPFRE receives a large part of its income precisely from Latin American countries, including countries that have very high inflation or are even experiencing a hyperinflation scenario. In the CFO’s opinion, in relation to this region, it is essential to “dollarize” assets and “address the problem of inflation from the point of view of efficiency in order to maintain profitability.” In reality, COVID-19 continues to batter the countries in Latin America, and he expressed concern about the lower vaccination rate, but it is here that “the tailwind, sustained by currencies, is helping to generate a significant increase in premiums.” The insurance company announced that its premium revenue rose 7% year-over-year until September, bringing the entire group’s turnover to more than 16.6 billion euros. And business has been boosted precisely by both LATAM North—mainly Mexico, due to Pemex’s biennial policy, but also Brazil, where premiums grew 6.7%—and LATAM South, where they increased 6.8%.
Despite the challenging environment caused by the pandemic and inflationary threats, the CFO stressed the Group’s commitment to maintaining a sustainable dividend. Following the minimal reduction made after the EIOPA supervisor recommended prudence, Mata assured that it will get back on track towards 14.5 cents a share when profits allow it. He also recalled that the dividend yield remains at around 8%, a very high level in relation to other companies on the Ibex and other European indexes.
The full event will be available this Saturday, October 23th.