A.M. Best Affirms A+ Rating Of MAPFRE Mutualidad de Seguros.

Business Editors

OLDWICK, N.J.--(BUSINESS WIRE)--June 9, 2000

A.M. Best Co. has affirmed the A+ (Superior) group financial strength rating of MAPFRE Mutualidad de Seguros y Reaseguros, Madrid, Spain. The group rating also applies to its subsidiary, Corporacion MAPFRE Compania Internacional de Reaseguros.

The rating reflects the group's superior capitalization, leading position in Spain, global name recognition, favorable earnings trends, successful distribution systems, operating strategies and strong reinsurance protection. Also recognized is the group's distinguished management team.

A.M. Best expects the rating to be strengthened by benefits to be derived from the proposed June 1, 2000, merger between the Spanish insurance subsidiaries of Corporacion MAPFRE and Caja Madrid, Spain's second largest Savings & Loan bank. The merger expands on agreements made since 1998 and increases the presence--as well as revenues--of both companies in the banking and insurance sectors of Spain. The companies will merge their businesses to form new units of life, non-life and health, and also include shareholdings in banking and asset management. The insurance subsidiaries will be part of a new holding company named MAPFRE-Caja Madrid Seguros; Corporacion MAPFRE will own 51% of the shares and Caja Madrid the remaining 49%. At the same time, Caja Madrid will increase its stake in Banco MAPFRE to 51%. The merger includes the two companies' exchange of shares in various units and a takeover bid for shares in MAPFRE Vida--the domestic life subsidiary of MAPFRE group--that were publicly held. The merger will create a combined network of approximately 4,200 points-of-sale for the joint marketing of banking and insurance products.

As a result of the proposed merger, Sistema MAPFRE plans to use the greater network to expand the cross-selling of its insurance and other products. The merger will also result in a larger presence in banking, asset management and securities brokering for MAPFRE. Given its leading position as a multi-national insurer, MAPFRE should be able to realize benefits in the near term. A.M. Best views the merger as positive and believes Corporacion MAPFRE's business plans project a reasonable volume of new business and adequate capital levels to support the insurance operations over the short- to medium-term.

The Sistema MAPFRE operates through key business units of insurance--life, property/casualty and specialty--and reinsurance domestically and internationally. The group is organized into more than 170 companies controlled directly or indirectly by MAPFRE Mutualidad and Corporacion MAPFRE. The Sistema MAPFRE is the largest insurance organization in Spain with gross premiums written of 651 billion pesetas ($1 = 179.634 pesetas). MAPFRE Mutualidad--the group's ultimate parent--leads Spain's market in motor insurance with a share almost double that of its nearest competitor. Corporacion MAPFRE--the group's holding company--has always been primarily focused on the personal retail market and small commercial lines. Most of Corporacion's profits are derived from its key subsidiaries: MAPFRE Vida, Seguros Generales, MAPFRE Re and MAPFRE America. The proposed merger with Caja Madrid will result in premium volume for the newly formed Mapfre-Caja Madrid Seguros exceeding 550 billion pesetas at the end of 2000.

The largest contributor to the Corporacion's underlying earnings is MAPFRE Vida. The company has effectively reduced costs and adjusted well to Spain's new low-yield environment. While still focused on the regular-premium market, MAPFRE Vida has diversified its products by launching single and periodic unit-linked products. The company also is targeting small- and medium-sized companies for group business, which is aided by MAPFRE being awarded the largest share of the SEPI (a governmental association of large nationalized industries) group business that has externalized the pension asset management of liabilities of public employees. The merger with Caja Madrid will put the MAPFRE Vida company at the top of the market with almost three times its original share. The already strong franchise is expected to become even stronger with a newly diversified product range under the new branding of Sistema MAPFRE.

Seguros Generales is a diversified non-life insurer leader that leads the market in household insurance. It also manages personal accident, motor and civil liability insurances. Consistent with MAPFRE group's strategy, the company has cut costs and is now focused on improving the level of its service to meet a more sophisticated customer base. Seguros Generales' call center handles more than 500,000 claims each year and its nationwide network is an integral part of the group's strategy. Its superior customer focus and service has helped maintain the market position.

Mapfre Re is the second largest reinsurer in Latin America. It is focused primarily on property/casualty lines and shows resilience in an industry that suffers from over capacity by making use of its direct relationships (85% of contracts) and excellent retention rate among diversified reinsurers.

Finally, MAPFRE America and MAPFRE America Vida are the group's holding companies for the direct insurance subsidiaries in Latin America. MAPFRE System is the region's leading overseas insurer, with premiums of 231 billion pesetas--89% from non-life activity. For cultural reasons, Latin America has been targeted for expansion. In the near-term, the group's strong information systems, improved data processing facilities and use of common systems, should provide cost cuts and boost future earnings. The long-term issue is the development of life insurance in Latin America. A.M. Best believes that the company can exploit synergies in these subsidiaries by transferring products and best practices from one market to the other.

Offsetting MAPFRE System's positive factors are Spain's highly competitive market--the result of consolidating insurance competitors, banks and brokerage companies--and its exposure to the Latin American markets that contributes to earnings volatility. Also the competitive reinsurance market continues to suffer from inadequate rates and volatility due to increased natural catastrophes.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.