Mapfre, S.A.

Good afternoon everyone and welcome to the presentation of MAPFRE’s results for the first half of 2020. This is Natalia Núñez, the Head of Investor Relations.

As in the previous quarter, this presentation includes the main figures to give you another view of MAPFRE’s performance, the MD&A and other information including the usual spreadsheets can be found on our website, as well as the embedded value figures for 2019. As always, here we have with us our CFO, Fernando Mata, who will go through the key highlights and figures of the quarter.

Before Fernando begins, I want to give you an update of MAPFRE’s operations regarding the pandemic. The current situation in MAPFRE is the best with new normality in Europe making it possible to return to return to almost full commercial activity in our main market Spain where more than 55% of the personal are back to this office.

Strict control and prevention measures are in place due to growing concerns regarding new outbreaks. The situation in the U.S.

and LATAM is complicated. New cases are still on the rise in the U.S., although in Massachusetts, our main market, the situation has been improving and 28% of the workforce is now on-site.

In Brazil, there is still large impact from the crisis, although in the state of São Paulo, where the company is headquartered, there has been a gradual improvement with now 18% of the staff back at the office. In the rest of Latin America, there is some concern as the number of new cases continues to grow and the interruption of economic activity is already causing a strong negative economic impact in the region.

MAPFRE will continue focused on the same priorities that we have had since the start of the crisis, guaranteeing the health and safety of all our collaborators on ensuring business continuity in order to keep on providing the highest quality service levels to our clients. Finally, just as a reminder, at the end of the call, we will answer all questions received at the Investor Relations email address, also the IR team will be available afterwards to answer any pending questions you may have.

And now let me turn the call over to Fernando. Fernando, the floor is yours.

Thank you, Natalia. And thank you everyone for being again here with us today.

Before we go into the details, I would like to highlight that we are satisfied with this quarter's results considering the current COVID scenario. Insurance units are performing very well with an attributable [ph] result of €429 million, up 15% on the year.

Iberia remains the largest profit and dividend contributor with a neutral [ph] quarter-by-quarter stability on Non-Life premium growth and also profitability. We have seen strong improvements in Brazil, the U.S., Mexico and other important Latin American markets, as well as Turkey and Italy.

There has been some benefit from lower frequency as a result of COVID, but we are also seeing the fruits of strategic initiatives that have been implemented over the last years. The largest impact from the pandemic has been on the topline due to confinement measures and lower economic activity.

The crisis has affected some channels more than others, mainly dealerships and bancassurance. Currency depreciation has been a headwind as well as the negative environment for Life Savings products.

Regarding the claims side, direct impacts on insurance units mainly in the Burial and Health segments in Spain have been mitigated by lower frequency, especially in Motor across all markets. This quarter, we booked the cost of COVID related claims at MAPFRE RE with €56.9 million impact on the attributable result.

Travel assistance business was hit, but mainly in the first quarter. Our strengths have been more positive in the second quarter.

Finally, we have updated IBNR reserves to reflect changes in claims reporting patterns as a result of the COVID, affecting the majority of the Non-Life business lines. The larger research were booked in Spain, but we have an exercised [ph] prudence in all countries.

This represents around 2.7 percentage points on the loss ratio for the Group. We feel quite comfortable with our current asset exposures.

During this quarter, we have carried out an extensive review of equity, fixed income, and real estate portfolios, as well as intangibles, and accounts receivable. Equity write-downs were negligible, and we haven't seen any signs of non-payment or delays in collections.

We haven't served any indications of goodwill impairments and results have improved in the majority of operations. The largest impact was from provisioning for undeveloped land in Spain, with a net impact of around €20.5 million.

Regarding net cat events, there was a smaller earthquake in Puerto Rico in Q2, and a slight increase in the cost of first quarter events in Spain, bringing the total net cost to around €77 million, up €10 million on this quarter. MAPFRE continues to boast an excellent capital position with significant flexibility to manage any potential volatility going forward.

Please turn to the next slide. Regarding the figures for the first half of the year, premiums are down around €1.5 billion euros in the year.

One important driver of the fall has been currency depreciation with a €580 million impact. Second, Life savings premiums down over €400 million euros in Iberia, €450 million for total group due to the challenging environment for these products.

And finally, as a reminder, last year there was a two-year industrial policy issue in Mexico for PEMEX for €445 million. Non-Life premiums are down slightly under 10%, but at constant change rates, and excluding the PEMEX policy in Mexico, they will be down, only around 1%, which is an excellent, considering the current market context and our focus on restructuring in several units.

The net result stands at over €270 million, with the combined ratio at 96.7%, and 93.8% at the insurance units. The direct impact from COVID claims and net cat events have been partially offset by a strong fall in frequency, mainly in Motor, across main markets.

Assets under management are down around 4% during the year, and shareholders equity is down around 6%, due to the downturn in financial markets and currency depreciation. But this is important with a 6% improvement since the close of March.

So let's say that the second quarter has been quite positive in terms of our capital base. At the beginning of June, we reported updated figures for our capital position with Solvency II ratio at 177% at the close of March, within our comfort range and excellent level considering the market situation at that time.

We should expect additional improvements in the second quarter. Lastly, embedded value was up over 20% in 2019 and this improvement is explained by changes in the model for the annual renewal business in the bancassurance channel in Brazil.

The fall in discount rates in major currencies, better experience, and as well as solid performance in new business, especially in Spain, and also Brazil. You can consult a full disclosure of embedded value on our website.

Please turn to the next slide. On this slide we will analyze the different components of the adjusted attributable result.

There have been several large claims, events during the first half of the year. Earthquakes in Puerto Rico had a total impact of €16.2 million.

There was another smaller earthquake during the second quarter, which explained most of the €7.5 million increase compared to March. The severe rain and storms in Spain had a total impact in January of €16 million, €10.2 in the Insurance unit, the remainder in the Reinsurance unit.

Regarding COVID direct claims, there was a €56.9 million impact of MAPFRE RE. This estimate is based on the most recent loss communication for accidents [ph].

I would like to highlight that we do not have exposure to event cancellation, and our main business interaction exposure is in the Reinsurance segment and there is no evidence of relevant exposure in our Insurance units. Regarding expenses related to reorganization of operations, last year there was a positive €4.5 million impact in the U.S., while this year there has been a €15 million net impact from our provision for restructuring of operations.

Financial gains and losses are down nearly €24 million compared to the previous year. The net loss in real estate reflects real estate provisions for land in Spain, which were written down by around 8% of their book value, which were partially offset by the sale of our property in Boston in the first quarter of the year.

Regarding financial investments, we prefer a cautious approach to realizing gains, when the market can offer better opportunities. Excluding all these impacts, the adjusted net result reached a €406.5 million, up €74 million compared to the previous year.

Regarding the impact of COVID on insurance operations, we expect the final effect to be almost neutral with tailwinds from a decrease in Motor frequency that will offset direct claims from COVID in other lines, other related expenses, and also the decrease in premium volume. With this in mind, we have decided not to include this affect in the adjusted result.

Please turn to the next slide. On the right, you can see the main figures by business units.

Again, I would like to highlight the consolidation of the positive trends in our insurance units with an almost 13% increase in net result. Iberia continues to perform very well.

The fall in the result is due mainly to lower financial gains, higher weather related claims, and COVID related expenses, have been largely offset by lower frequency in Motor. And regarding premiums in Spain, we outperformed the market in most business lines.

In Motor, we've taken a more cautious approach given the current pricing environment while prioritizing customer retention. Premiums are down in life savings, but we are outperforming the market in Life Protection, which is a higher margin segment with premiums up over 4%.

The contribution of MAPFRE VIDA was €88 million euros, very stable year-on-year, which is by the way it's an excellent result in the current context. In other regions, it is important to highlight the strong impact that currency movements have had both on premiums and results.

In LATAM results are up nearly €30 million, and all three regions are reporting remarkable ROEs within an outstanding 17% in LATAM North. The combined ratio for the region stands at under 90% and despite headwinds results have improved in Brazil and Mexico, and across Central America, especially panama.

In Brazil, in local currency we've seen a strong growth in Agro insurance and resilient life protection premiums, while again the Motor premiums continue to fall as a result of a restrictive and the write in approach. The improvement in the attributable results is due to the measures being implemented in Motor, as well as lower frequency due to obviously to the pandemic.

Regarding the international business, results are up by €31 million year-on-year. There were two large impacts in North America.

First the €14 million net realized gain from the sale of real estate in the first quarter, and second, the €26 million net loss, as a result of the earthquakes in Puerto Rico. The results in the United States are also benefiting from profitability measures implemented in the last years.

Results continue to improve significantly in both Turkey and Italy, thanks to a focus on underwriting discipline, as well as significant decrease in Motor frequency as a result of the crisis as well as significant decrease in motor frequency as a result of the crisis. Regarding RE and global risks, as I mentioned in the previous slides, results were impacted by the earthquakes in Puerto Rico and storm Glory in Spain with a total net impact of around €41 million, as well as around $57 million from COVID related claims.

There has also been an increase in additional claims frequency. The total impact for MAPFRE RE from COVID related claims was €80.9 million before tax and minorities of which €70.9 million correspond to property claims and based on the information reported by residents as well as an evaluation of exposures reported by our clients.

Claims reported in property lines are basically concentrated in specific business interruption covers in Europe, mainly in Germany, France, the United Kingdom and Switzerland. In the vast majority of property portfolio, business interruption coverage is contingent on the assistance of material damage which does not assist in this case as you remember Eduardo Pérez de Lema stated the first quarter presentation.

Therefore, there has only been exposure in a very limited number of cases. However, there is a high degree of uncertainty surrounding the final amounts to be paid and how legal proceedings could conclude.

In the [indiscernible] although reported claims have been very, very limited, small amount, at the million reserve was booked as an uptick in claims expected for the coming quarters. MAPFRE RE has not had any claims related to event cancellation as we do not underwrite this line of business, nor do we have exposure to casualty or Workers' Compensation in the U.S., and the impact in the Life business has been pretty, pretty immaterial so far.

In the system business the largest hit was from travel cancellation claims in the first quarter of the year. We have been prudently reducing exposure and we have also taken further steps in our restructuring process.

In addition to the five operations we already decided last year to shutdown you remember well, we have also decided to put the UK specialty insurance unit in runoff, as well sell the real estate assistance business in the U.S. No additional economy financial impacted are expected from these operations.

And finally, the line of other, apart from holding expenses which is the normal expense we include in this line, we have included a provision for undeveloped land in Spain and also the restructuring provisions that we already mentioned. Please turn to the next slide.

Shareholders equity stood at €8.3 billion, down around 6% during the year. The most relevant changes are first, €424 million decrease from currency conversion differences due to the depreciation of almost all currencies, but mainly the Brazilian real by far our second largest exposure which is down over 26%.

The Mexican and Colombian pesos and the Turkish lira are also down during the year. The U.S.

dollar was slightly down in the quarter as well and in the second quarter there was a €96 million deterioration from currencies. So if you compare with the first quarter you can conclude that the volatility seems to be more moderate in this quarter.

Net unrealized gains on the available-for-sale portfolio have only had an €86 million negative impact during the year. However, they have improved by €440 million on the second quarter.

The 2019 final dividend amounted to €162 million [ph] was paid in June as you know. New information, that you very often ask us the upstream of dividends within the group has been very, very stable during the period.

Total upstreaming reaching €280 million in this quarter, with €208 million from Spain, €37 million from the U.S., and €29 million from Brazil. On the right you can see the breakdown of currency conversion differences as of June 30 and changes during the period as well.

As you see the sensitivity analysis, the U.S. and the Brazilian real are the most relevant currencies.

On the bottom left you can see the detail of the net unrealized gains amounting to almost €1 billion similar to the beginning of the year. And on the bottom right you can see the detail of the available-for-sale portfolio in Iberia which represents three quarters of MAPFRE’s total available-for-sale portfolio of around €37 billion.

The majority of unrealized gains are in immunized portfolios and the gains have increased in March, thanks to the recovery in the markets. Please turn to the next slide, capital structure and credit metrics.

On the left you can see the breakdown of the capital structure which amounted to €12.6 billion. Our credit metrics remained quite strong with leverage around 24% which will go back down to target levels over the course of the year.

Regarding Solvency II, on the left you can see that the ratio closed at 177 at the end of March within our target range. Eligible funds were down by nearly €780 million mainly as a result of market movements, but it was offset by €180 million reduction in the capital requirement, mainly due to equity and currencies to [indiscernible] of spread risk.

The largest move in eligible own funds in March was the fall in market value from investments and currency movements and the phase out of some transitional measures also takes place in the first quarter. As a reminder, the approval process for the use of our internal longevity risk model for group Solvency calculation which is currently used at MAPFRE VIDA is underway.

We hope to receive approval to apply this to 2020 year end calculations. This will imply a 10 percentage point uplift to Solvency figures roughly.

Regarding the credit diversification benefits from the margin adjustment, this process could take a little bit longer and combined expected uplift is around 17 percentage points. Please turn to the next slide.

On the right you can see the assets under management as down over 4% driven by the falls in stock and debt markets as well as currency effects. Despite the fall, we are seeing positive net inflows in pension funds.

The breakdown of the investment portfolio is on the left. Asset allocation has been stable throughout the year and exposure to government and corporate debt remains mostly unchanged.

Spanish sovereign debt for a little under €18 billion and Italian debt around €2.9 billion are our largest exposures. These investments are mainly held in immunized portfolios.

Realized gains are in the euro area reached around €29 million, down by €21 million. We continue with our cautious stance regarding assets sales and wait for better opportunities in the market.

Please turn to the next slide. On the top half of the slide you can see the deals and duration of our euro area strictly managed fixed income portfolios.

Non-Life and both accounting and market deals are down, while life portfolios have been fairly stable. Nevertheless, I mean the trend is not positive and for those portfolio deals should continue downward.

On the bottom, you can see that the portfolios and all the main geographies, here accounting as still well above those in Europe have been quite resilient in LATAM North and North America. However, we are still seeing some downward pressure particularly in Brazil and LATAM South.

Please turn to the next slide for closing remarks. First of all, performance of the insurance unit has been astounding, reaching a net result of nearly €429 million, up nearly 13%.

Regarding MAPFRE RE, it is a challenging time for insurance. COVID claims should be manageable and MAPFRE RE maintains a strong financial position and prudent underwriting approach.

Right now our top priority is preparing our business defensively to face this crisis, which will continue for some time. We are implementing portfolio retention plans across the globe and we are also focused on cost contention and continuously streamline our business units.

In any case, business transformation is key, and we are maintaining our initiatives in order to have more efficient and digitalized operations. MAPFRE has a privileged financial position with a solid capital base, financial flexibility, and high level of liquidity, underpinned by strong cash generation and dividend upstream from subsidiaries.

We continue to demonstrate our commitment to shareholders. Final dividend against 2019 results was paid in June.

The Board of Directors will assess future dividends during the fourth quarter on the year, but current metrics do not point to any potential restriction for dividend payment. Again, the main driver of dividends will be net income with a minimum payout target of 50% as we announced at the AGM.

Regarding other targets announced at the AGM, there is still a lot of uncertainty surrounding the spread of the pandemic, and also the related economic crisis. Most markets have also been hit by lower activity and lower interest rates.

In this context, it is impossible for us to give guidance right now, but our strategies in place, our priorities haven't changed and we expect to follow the same trend. I mean, focus in giving protection to employees and other clients and other stakeholders.

Thank you for your attention. And now I will hand the floor over to Natalia to begin the Q&A session.

Thank you very much, Fernando. We can start now with a Q&A question.

The first one is coming from Paco Riquel, Alantra Equities and has the following question. Can you please explain the increase in IBNR reserves equivalent to 2.7 percentage points in terms of combined ratio?

In what regions and products, have you booked these provisions? I ask because the combined ratio in some business lines looks too low, close to 70% in Northern Spain during Q2.

Paz Ojeda from Banco Sabadell will also like some details, like to know some details regarding the breakdown of the IBNR updating.

Thank you, Paco and Paz, quite interesting questions. Very simple since the end of April and of March sorry, as we realized it was delayed in the way that the claims were reported by our policyholders.

We set the different instructions from our [indiscernible] in order to assess proper IBNR reserves and to catch up this delayed in the way that claims were reported. This IBNR has been updated on a monthly basis.

The peak was at the end of May. There are some releases in April, particularly in Iberia, because the peak of the pandemia was over practically at the end of the March and it was a pretty stable catch up of claims reported.

In general, let's say that this IBNR update is affecting all the units and all line of business, includes both it includes both, COVID direct affected line of business and also others such as Motor in which the IBNR a new estimate, it tries to a somehow limited the number of or the increase of, of losses in the future. More or less half of this IBNR was booked in Iberia.

As I told you I mean there's some releases in June. Line of business mainly effected health and Motor segments, but they're new estimates from practically all lines of business.

Thank you very much. Jonathan Denham at Morgan Stanley and Andrew Sinclair at Bank of America have the following question regarding claims frequency.

Your auto combined ratio improved by almost 10 percentage points, versus the first half of 2019. How do you expect claims frequency to develop going forward?

Farquhar Murray from Autonomous, Michele Ballatore at Kee KBW and Alex Evans from Credit Suisse had similar questions. With a special focus on the Brazilian Motor and U.S.

markets, specifically, how much of the improvement in combined ratio is due to underlying improvements and how much is due to lower frequency? Farquhar also would like to know, in Motor, please could you just quantify the number of car claims over the second quarter of 2020 as compared to historic average, how has that developed so far in the three quarter of 2020?

In homeowners did you see any material differences in frequency or sobriety, particularly from households being able to spot developing claims earlier than might be normally the case? It's a long question, but we have…

More than a question I mean – it’s almost a summary of the Q&A session.

But we have tried to…

I'll try to cover them all, I know.

Yes.

Yes. Thank you.

I mean, thank you for your question. I understand.

I mean, this is the key question. But unfortunately, I'm not unable, I'm not able I mean to predict what is going to happen.

What I can tell you is, what we've seen, yes in the short run. Particularly our experience in Iberia, when - and Italy is when we studied the pandemia and also how is this pandemia developing particularly in emerging countries in LATAM.

First of all, I mean, it's absolutely impossible we can differentiate the reduction in the loss ratio in automobile, separating those derived from the lack of frequency, due to the lockdown measures and those that are derived from a strategic measure implemented in order to improve our combined ratio particularly in Spain, U.S. or Brazil.

What happened I mean during practically the second quarter of March, April and June, they were not reported claims particularly in automobile. So, then we started the process to catch up and just to assert a better estimate for IBNR.

Suddenly, once the lockdown measures were lifted, where we realized it was really a big tsunami of reported claims affecting both lines Motor and also Homeowners, ideally just a number. In June it was a 50% increase for Homeowners and condominiums decrease, increase in the numbers of claims reported that period.

Regarding outlook for automobile, what we saw was one in Spain and we should expect the same in for U.S. and emerging countries when the lockdown measure are lifted is a dramatic increase in mileage, particularly in the weekends and that while, working days mileage is still pretty reduced is due to the number of employees there are working from home.

Regarding frequency and also severity in Spain and was published by the traffic agency, the Spanish traffic agency, we saw in just in two quarters the last quarter, the last week of and just in, sorry in one fortnight the last week of June and first week of July, an increasing number of deaths in traffic car crashes, increasing 22%. I mean it was a dramatic increase.

We didn't have this hit in our experience, but the increasing number of deaths in the spring was as well in U.S a two digit percentage. Regarding Homeowners again, I mean, during the lockdown and the confinement, practically there were some claims, personally declared, but they were important, it was practically impossible with information to assess a proper loss estimation.

So when the lockdown measures were lifted, and when we started catching up, I mean it was a big backlog of claims and this, the one that it was, I mentioned the 50% increase during June. We should expect a similar trend in the U.S.

where there is some delay in the pandemia tsunami, let's say that, and the same as well in Latin America. This is mainly the reason for the new estimate for IBNR in order to try to cover delay in the way with the policyholders are reporting claims.

I think I covered most of the questions, so please move to the next and Natalia.

Thank you very much. Thank you very much.

Now Jonathan Denham at Morgan Stanley has the following question. COVID cases unfortunately seem to be increasing in Spain again.

What actions have you taken to be better prepared to tackle a second wave in Europe, if there is one?

Well, that is not still clear. There are some clusters in Spain and also in Europe, but let's say the consensus is like the second wave if in the end, there is any, I mean, it won't produce the same intensity in terms of patient alignment in causalities particularly in Spain.

Our National Health Service is better prepared. I mean, there is a plan, contingency plans and ready.

And currently probably you've seen in the papers and there are like over 200 clusters across Spain, but there is a capacity in majority of the hospitals. I mean, the intensive care units, they're not collapsed.

I mean, there are beds for everyone. And unless say that the National Health Service and also MAPFRE they are better prepared, just to face with a second wave this pandemia.

In terms of operations, as I mentioned, I mean that we have 30% or 40% of our employees working at premises which is good and the remaining 60%, they're working from home. So let's say that practically 100% of employees fully working.

In terms of technology, I mean, we set new contingency plan as well. Everybody's well prepared and also the operating entities and they're fully working with the same quality level and attending all the claims, I mean file with policyholders.

So let's say that these back to normality, in terms of logistics and operations is fully implemented and the conclusion is we are better prepared and ready in any case, I mean for a second wave of the pandemia.

Okay, thank you very much, Fernando. Now we have questions regarding MAPFRE Reinsurance.

And now one second yes. Here they are.

First one is, this one. Most of our analysts would like to have more details of the impact of COVID claims at MAPFRE.

Alex Evans at Credit Suisse, Paco Riquel, Alantra, Jonathan Denham at Morgan Stanley, Sofia Barallat, Caixabank, Paz Ojeda at Sabadell have asked regarding this topic, so I think it's important for all of us. They would like to know more details about the losses booked for business interruption at MAPFRE in first half, if we should expect further losses in second half or in 2021.

If the amount provision covers all potential risks arising from this cover or only the claims occurred in the quarter and if we have considered the possibility of an increase due to litigation of the night claims and future claims.

Thank you, Natalia. Unfortunately, we do not have Eduardo Pérez de Lema in the meeting and but we will bring him, we will invite him for the third quarter results presentation.

Yes, I want to make it pretty, pretty clear. We booked everything we know and also what we know today and that we will close our accounts any subsequent events, regarding the provision was booked.

And I'm following the traditional basis for prudence MAPFRE applies in – for provisions. And when I mentioned we book everything we know is that, everything was reported by our sitting [ph] entities.

In addition, some IBNR regarding exposure of claims, that haven’t reported claims yet. So let's say that they're both, I mean individual reporting claims for sitting [ph] entities and also some bulk for IBNR.

That is basically for business interruption, but we also booked practically I mean the €10 million before taxes on minority effect there on the credit line, practically the whole amount was referred to IBNR. The number of claims is pretty, pretty small and we booked these IBNR because of the currency deterioration of the economic scenario.

Let's say that they're a MAPFRE credit – our exposure in credit line is quite reduced and that is as we mentioned at the first quarter presentation is just merely 3% of the total MAPFRE RE exposure. Regarding the property line, as I just said, we have evaluated claims based on the information reported by residents, as well as on evaluation of the current exposures that were reported by our clients.

Claims have been rejected, obviously in case of unknown existence of this coverage in the original policy, they see then entities or their insurance policy. In these cases, this could be legal procedures in the following quarters, and the only thing we booked is small reserve for legal expenses.

Also many clients are still evaluating any potential direct impacts that they could suffer and also the possibility of recovering this way with their insurance coverage. Any of these potential future, I mean third quarter claims that have not been incurred and not included in this valuation means that losses coming in the third quarter will be booked during the third quarter.

As we said during the presentation, claims - as we said yes, claims reported, I was looking at the papers, claims reported in property lines were concentrated exclusively in a specific BI, business interruption covers in business in which there a link to material damage. And geographically taking they are mainly in Europe, affecting Germany, France, United Kingdom, and Switzerland.

Those are the main countries. Once again, please take into account that the - and I repeated the business interruption coverage is only triggered in the event of material damage, which is not the case.

But we booked in the report that are sitting entities are reporting. The claims occur and reported today have already been resolved.

That's currently reflecting our current costs and exposures. Well, we don't - we take in measures in order to reduce future exposure in the event of new outbreaks.

In general, I would like to say that the quality of our policy wordings have improved adding more clarity to wordings. And in most of the cases including specific exclusions to limit coverage, But anyway and this is something that we have to state, there is a still high level of uncertainty, which may lead to changes in valuation mainly as a result of different variables such as, first the possibility of growing [ph] that got forced to pay not covered claims, which is in my view or MAPFRE's view is not probable.

Also possibility of losing arbitration processes with some clients, possibility that the economic crisis generates larger losses than they initially considering the credit segment so far, I mean the number of clients there are very small and very reduced, and also possibility that potential new outbreaks lead to new claims, perhaps which is nobody likely, thanks to the compensation agreements signed in previous outbreaks, and also the progressive introduction or exclusions. Overall, I mean, all-in-all in a nutshell then, I mean, it's difficult.

We booked what we know, and there is a lot of uncertainties regarding the proper development and evolution of this claim. I mean, it's a quite complex cat event.

It will last as long as the COVID last also, and let's say that the - I have to say that the COVID is still out there. So let's say that the event the claim will evolve as long as the COVID is affecting the population.

Yes, thank you very much Fernando. I think it's very comprehensive answer too.

Andrew Sinclair at ‎Bank of America would like to know how much losses was passed from geographic business units to MAPFRE via internal reinsurance, did any of these relate to COVID-19?

Practically no, Andrew. The COVID impacts of the insurance unit is largely retained by the insurance units.

And perhaps for some proportional reduce and but they were quite reduced and the impacts at MAPFRE RE are largely from external clients. So, let's say that only in those cases that are proportional reduce [ph] quarter share, these been passed to MAPFRE RE, but is negligible.

Okay, thank you very much. Now, next set of questions are regarding dividend and strategy.

Alessia Magni, Barclays had questions regarding dividend and targets. Are you still comfortable with your 2021 targets?

Regarding dividends, consensus [ph] has recently reviewed downwards its dividend forecasts for 2020 and beyond. Each year dividend policy unchanged or are you considering a review?

Yes, let's say that we are pretty comfortable with the results we are publishing today and also with the solid and quite strong balance sheet of MAPFRE is presented as well. When we - I mean, interestingly difficult to yes to see or just to forecast which it is going to be, I mean the final effect impact of the COVID in the second part of the year is absolutely impossible.

It won't be prudent and yes to give any guidance. When updated 2021 targets were announced at the AGM this year, we were only just seeing the first impact of the COVID crisis and did not contemplate the current situation.

But I remember where our Chairman said, at that point, we were leaving the first steps of this virus, of this pandemia. And he said that any potential effect will affect obviously our targets and will be updated when we know the – quite actual impact or accounts.

So let's say that those targets published at that date already contemplated any potential change derived from the pandemic. It could be one of the largest insurance events in history, both I mean due to the virus itself and also the collateral effects on the economy crash.

The ratio nobody knows. Extremely difficult to predict.

But we seen is that the consensus is that the significant falls in GDP are expected in 2020. And depending of the pattern of the shape of the partial recovery, that will be recovery whatever, you got all the different options, and there is a still higher level of uncertainty.

This economic outlook will clearly have an impact on insurance and reinsurance market forcing premiums as I said the most affected line will be top line and also our expected impacts on lines such as health and also automobiles. It will depend on how lock downs and confinement measures will last particularly in emerging countries, and also the measures regarding social distancing that there are 15 as well are the standard of living.

We expect low growth in most countries, which will also depend on currency evolution. We will maintain our prudent strategy, are very strict on technical control.

I mean our underwriting policies are practically same and even stricter. Our insurance premium should suffer significant reduction in new business we've seen in Spain due to lower cat sales.

I mentioned as well in some the first quarter and in some countries we have zero new business in some months. On the other hand, health insurance could benefit from higher premium volume, as in crisis situation people try to find additional medical coverage.

We expect as well change in covers in euro [ph] and particularly in automobile, in general drivers policyholders they move from full coverage to less say comprehensive products just limiting probably to third party liability. Life protection insurance going forward will depend on high consumption investment and lending, particular financial lending, involving the different markets where we operate.

Regarding guidance, we do not usually provide any annual guidance. But even if we did in the current situation, it will be now prudent due to the high level of uncertainty that we're facing.

We're working with different scenarios. Today, we presented to the Board the [indiscernible] risk Solvency assessment with different scenarios we will file with the Spanish Regulatory Body, and we've been very prudent because the lack of let's say actual information in order to have really accurate figures is simply difficult.

However, and there is always a however, the strength of MAPFRE’s balance sheet is high level of capital and solvency and liquidity position, they are available of additional financing making it possible to conclude that these impacts in any case will be limited. As I mentioned, our priorities haven't changed.

The transformation our business model continues to be a top priority for the executive group and we are focused on profitable growth. We will be prudent and monitor the situation and when we review the targets we'll make them public as soon as possible.

And that's basically regarding dividends, dividend policy has not changed. I'll make it clear, the dividend has not been cut or cancelled.

We have only delayed the dividend decision. The Board will monitor the situation carefully and will reassess the situation in the fourth quarter of the year, when we have the financial reports for the third quarter, and also in line with the supervisor recommendation that is a strong recommendation and also taking into account all their circumstances.

In any case, we maintain a strong commitment to shareholders. And as I mentioned, current metrics do not point to any potential restrictions for dividend payment.

We're keeping regular maintaining regular conversations with the Spanish Supervisory Body, and their focus on maintaining solvency levels and liquidity. We should expect the Solvency II ratios as of June, I mean just to improve.

MAPFRE is in an excellent position in this sense. MAPFRE is now the more solvent company in the Spanish market, and they're very, very good news regarding our capital raise.

So all in all, in a nutshell, the dividend will depend on three factors. First, and there is nothing new.

First, net income, which is still uncertain. I mean, we quite satisfied with the net income for the first half of the year, and the minimum payout target of 50% that was announced at the AGM is still valid.

Second, solvency and capital strength we are comfortable, and third liquidity and dividend [indiscernible] which is also comfortable. As I mentioned, our subsidiary generates sufficient cash to finance their operation and as well and stream the dividends, I mean to the holding.

Only external factor could limit this streaming, but they're quite extreme, quite radical. But we don't and this is the information we mentioned.

In the U.S., Spain, and Brazil, we already cashed in $280 million in dividends during this first half of the year. So there is no cash restriction at all.

In some countries, we will limit dividends to extract new capital liquidity. Particularly, we want to strengthen our capital base in Mexico, and also in Colombia, and in Peru, but those are not the most significant dividend contributors, and there is no restriction for the dividend of the group.

Some pressure, you know, from a Mexican supervisor, but we are quite comfortable. And I mean, we are happy, we reinforcing our capital in Mexico.

So probably there is no - it won't be any abstain of dividends from this country. In terms of the only contribution we are missing and is from MAPFRE RE, it has been a challenging year for MAPFRE RE, and probably I mean, we suspend any dividend payment if any, I mean from this subsidiary.

I think we covered a lot.

Yes, a lot. Yes, this is such a great.

Thank you. Thank you very much.

Now we can start with a video is the next set of questions is regarding the motor business in this region. Jonathan Denham of Morgan Stanley has the following question regarding the motor business.

Can you please give us an update about the pricing environment and underlying claims inflation, excavate frequency in the Spanish auto market? Also Sofia Barallat at Caixabank, maybe would like to know, other competitors in Spain have started launching more aggressive commercial campaigns in motor insurance.

Have you taken any actions on this front? And could you update us on the evolution of the combined ratio in motor insurance in Iberia since the confinement measures have been lifted?

Yes, I mean, as I mentioned it is extremely difficult to differentiate in terms of combined ratio or ratio, I mean the decrease and differentiate by confinement effect or lack of frequency because of the reduced mileage that they order - let's say strategic initiatives that we've put in force in order to improve combined ratio, particularly Spain, but also in the U.S. and Brazil is absolutely impossible.

Probably with the year and figures, we can give you clear picture. Before the COVID crisis, what we saw is some pressure on tariffs, particularly in Spain, but also we saw as well certain improvement as well, particularly in some segment of automobile in terms of combined ratio.

But let's say that was the general trend, pressure on tariffs, and it was practically around 2%, 1.5 between 1.52% decrease in average premium more or less. I don't remember what, but more or less in this range.

What we saw is after the COVID crisis no new business. I mean, what are we doing is just trying to protect our portfolio with rebates, discount in order to keep the portfolio quite stable.

We continue with a very, very prudent approach. Fortunately, the churn ratio in order is quite stable, haven't seen any significant change and we also put our portfolio retention plan in place in Spain.

One of the most important ones is the special renewal for motor policyholders with an average discount of around more or less 4 percentage points. As I mentioned at the press presentation, I didn't say in this, but our fleet is quite stable.

The number of insured vehicles hasn't changed and so there is a decrease in premiums approximately 5%. So let's say that the average premium reduction is 5% as well, and is based on the discounts that we are offering our policyholders and our retention measures.

So we are happy. Let's say that the, and I am sorry, your question what the competitors doing?

I don't know what they're doing. What we know is what MAPFRE is doing is practically every day we are offering, I mean the best price according to the risk profile of each driver, the best price to our policyholders in order to maintain in our portfolio.

We are quite confident that we are able to keep to maintain our portfolio without doing any radical measures and I mean underwriting policies still in place, and we are very prudent. So the policies that they're getting discounts is because their risk profile allow this discount.

It is quite simple. I don't see, I mean, what the other competitors doing.

We believe that MAPFRE is doing the right approach in this crisis. I mean, discount they're made on daily basis at renewals and based on the whole experience of our policyholders, not just if they declare or they reported a claim during the last two months or due to any other external factors.

Regarding frequency, in the middle and long-long term we should see some normalization from current levels, which are very much affected by lockdown and social distancing measures. As I mentioned, the Spanish Traffic Management Authority, 22% increase in deaths just in two weeks.

We had to wait just to see the whole July month figures, but what we're seeing is more mileage at weekends, and more accident in our highways. We've seen also an increase in declared claims and reported claims with an uptick in severe accidents probably due to higher speed as well.

People - I mean drivers are speeding up is - I wouldn't say normal, but this - we should understand this is a personal reaction as a human being reaction after three months of confinement. Regarding claims costs, it will depend on the evolution of the Spanish inflation, but we could see some pressure from monetary easing.

And nevertheless claims cost inflation is generally updated in pricing and is being considered as well at renewals. I mean, the current 90% combined ratio for MAPFRE Group and also 80% combined ratio for the Spanish business is not sustainable.

I mean the majority of the reduction is due to the confinement measures. And we should expect the combined ratio to come back to expected figures in a range between 92 and 94.

That's basically, hopefully I covered most of the questions.

Sure, thank you. Thank you, Fernando.

This one is regarding solvency Paz Ojeda at Sabadell has the following questions. Equity has increased €500 million from Q1, what should make Solvency II figures to go up?

Could you give us some light on Q2 Solvency II figures? Sofia Barallat of Caixabank will also like to have an update on the Solvency II ratio as of June 2020?

Yes, thank you, Sofia and Paz, I mean we're working in numbers and there is still a lot of work to do. I don't have the crystal ball, but what we're seeing is a better trend obviously, and the financial markets are in a better shape.

And we changed our portfolio as well, trying to have a lower exposure particularly in equities. I mean, it was very good news.

I mean just a small amount that we embedded in equities means our portfolio, our equity portfolios is in a Safe Harbor. And bearing in mind that the largest moving in eligible on funds in March were the fall in market value investment and currency movements and also the transitional measures you know the phase out is being booked at the 1st of January every year.

We should expect for Q2, but I will be extremely prudent, better, higher Solvency II ratio versus previous quarter. But let me tell you as well, but in order to have a better clearer figure, we should expect the end of the year when we have the net effect of the decrease in premiums and also the decrease on provisions for the full-year that will affect decrease in our SCR.

As of June, we are not going to see such a reduction in SCR since the whole effect of reduction in premiums has not been booked yet.

Okay, thank you very much. Now, Andrew Sinclair of Bank of America and Jonathan Denham of Morgan Stanley have the following question regarding equity impairments.

How much of Q2s lower investment income was due to one-off impairments?

Yes, regarding equity was practically negligible. I mean, it was just €1 million, and we have been very, very prudent and it was practically negligible.

And the bulk of the impairment book in this quarter was for provision on land in Spain. And as I mentioned amounted to - out of the 29 like a 2 million before minority and taxes, 2 million refers to equity, and the remaining 27 to real estate, new valuations.

Regarding Non-Life financial income, the fall is due to lower realized gains, lower ordinary recurrent income in our fixed income and portfolio as well. And dividends, which the net effect will be at the fourth quarter, which is usually the calendar for the dividends for an equity portfolio.

But nobody knows, who are going to pay dividends at the end of the quarter. We expect lower from the financial institution because of the restrictions made or recommended.

I don't know what to say. I'm looking at facilities from the European Bank.

But the reality is that we should expect perhaps a 50% reduction on the dividend flow.

Okay, thank you. Now, what is another question, what is the magnitude of expected future equity impairments if the market stays flat?

This is impairing the stocks with unrealized losses which have a market value below book value for longer than 18 months.

Yes, if the market remains flat, I mean, the impairment will be zero. I mean none.

As I mentioned, we booked everything and we know today and there is only, I'll give you more details, there is only one name with valuation above 40%. But I have to clarify as well, I have to add that there is some big names in the range between 30% and 40% decreasing value.

So it will depend on how the equity market will evolve during the third quarter. So far and according to just evaluation, there is no any evidence or new impairments, nor an equity or real estate.

So let's say that we have a very prudent real estate and equity portfolio.

Okay. Thank you very much.

And now we have a question regarding outlook. This is it, okay.

Alessia Magni at Barclays would like to know what trends are we seeing in the 3Q 2020 so far in terms of Motor premiums and claims in the different regions?

Alessia, thank you for your question, but extremely difficult. What we are seeing is extreme variation in low ratio and combined ratio and premium growth across the regions.

And as I mentioned, for instance, there is significant increase in global risk because of the hardening of markets, which is very good 40% increase. But on the other hand, there is 50% decrease in Motor in Brazil, quite extreme, Burial expenses.

For instance, in Spain we have a combined ratio well above 130 % during the first half of the year. Obviously, during the second part of the year will decrease, assuming there is no new clusters or let's say that for dividers in Spain.

Same is happening with profits, there are some small entities, they're reporting extremely good results. If you see the numbers, so all the small entities and I mean, results are astounding.

They're not sustainable in the future. But other negative results that we've seen such as MAPFRE RE or global or even assistance, they are not either sustainable in the future.

So we should expect is both negative and positive to converge into standard metrics, the metrics we expected, the metrics we had before this crisis. So far, I mean, the range of variation is extremely wide.

I mean, and that is because of the effects of the pandemic at the second quarter. But it is extremely difficult to predict what is going to happen, particularly in LATAM or in the U.S.

during the third quarter of this year. Sorry about that, but I'm not in a prudent mood just to give you any guidance.

Okay, thank you very much. Also, Alex Evans at Credit Suisse asks, have you seen a better trend in premium growth since the end of Q2, as economies have begun to open up more or should we expect more of a longer term impact?

Well, what we are seeing is a nice rebound particularly in Spain in June, and we should expect is a flight to quality trend, particularly for new business in insurance shoppers. I mean, the name of MAPFRE, I mean weighs a lot particularly in Spain where people are shopping insurance.

And so let's say that we are happy I mean with our churn ratio and also with the new business, and is back to normality particularly in Spain. But there is just only three weeks and we should expect longer in order to see our longer period of time in order to materialize this conclusion.

In LATAM still there are a lot of uncertainties, and I'm not in a mood, I mean to give you any guidance. So let's say that again, I mean MAPFRE name and our name recognition is very important in order to see an improvement in premium growth particularly in Spain and also Massachusetts.

Thank you very much. And now continue with the outlook questions.

We have one from Andrew Sinclair and Alex Evans that is on COVID impacts. You said that COVID impact on business units ex-MAPFRE was neutral.

Was this for first half or expectation for the full year, do you expect it to be neutral for the full year?

Again, very difficult. What we saw during this half the year is that the decrease in frequency, particularly in auto which is a positive thing, and is offsetting.

I mean increasing other line of business, and also the premium decreased, and also other expenses that we disclosed amounted to €27 million. And if you can put that one in the same bucket to a certain stand the decrease also in financial income.

In the future, we should expect a neutral effect as well, but it's difficult. I mean, it's difficult to predict.

As long as we could have as well is quite a strange situation in which there is new outbreaks with no fatalities, but confinement measures, in that case, I mean it will be a decrease in frequency, but - we don't - we are trying to transfer this increase in profitability to lower prices to our policyholders. I mean, we are extremely committed, I mean to protect our portfolio and will do it again.

Okay, thank you, Fernando. We have here a follow up question that is coming from Jonathan Denham.

I thought you had two potential triggers for equity impairment, the decline in market value is above 40% of book value or the market value is below book value for over 18 months. You have some stocks 30% or 40% down then they get impaired, they said at a level after 18 months is regarding the answers you have already given just before?

Yes, I mean, the financial reports are the MD&A there is a full disclosure of the way we impair equities and there is a full disclosure is €0.9 million for a decrease in the value, and €0.7 million even I can't disclose, there is only one name it was in Spain and there is no additional exposure. And regarding those that they got a period of 15 or longer period of 18 months, it was a small portfolio allocated in Malta, if I remember well, and there is no additional exposure or additional risk for portfolios longer than 18 years.

Our – months, sorry, yes months. Thank you.

I mean, we are focused on this special range of 30 and 40. Let's say that the - I mean, it's easy to guess the names that they included in this range.

There is Spanish financial institutions, and also oil companies, and we are pretty sure that they're quite reliable. And there is a temporary decrease in the value of these stocks.

And in the future, there will be a bounce, I'm sure for those equities. If not, I mean, we'll get rid of this.

I mean, as we've done with other stocks, and once they're close to the red line, we go to the market and we will sell them and that's basically, and when I said that the - in July and during the second quarter, I mean, we tried to have a - I will say more prudent equity portfolio is because those that they were above the red line. We got rid of them and we will do the same if there is any.

So far we are comfortable. They are still in our portfolio.

They are quite reliable financial institutions. So there is no reason to get rid of them.

But if there is an additional risk, we will do it.

Okay, thank you very much. There are a couple of questions, but more or less they are followup questions.

I think they have already been answered during the call. One of these is Alessia Magni at Barclays has the following question in the second quarter of 2020 combined ratio, improved 2.9 percentage points year-on-year.

Can you please give us the main drivers of these improvements in second quarter? In second quarter also how much was the benefit combined ratio from Motor lower frequency and the negative impact from other lines [indiscernible]?

Well, we don't need – we disclose the decrease or let's say the change in different combined ratio for the different line of business, I mean is included on page, correct me if I am wrong, on page 6 of the financial report. I mean the majority of the decrease in loss ratio is due to the confinement measures, the lockdown measures, and the main increase in Burial expenses is due to the number of deaths and that is everything that we can say so far.

Okay, thank you very much, Fernando. One more followup question and this is the last one for today.

It's been a tough session and a long session with a lot of interest from the analysts and investors. Can you - this one is coming from Andrew Sinclair, can you please ask – okay the following question on dividend.

How committed are you to keeping the dividend at least flat year-on-year and avoiding a year-on-year dividend cut is they want more clarity.

Andrew a very interesting question. I mean, the last one, I'm sure.

But then, the only thing I can do is just to repeat what I said, fully committed with shareholders and investors and main driver for dividend payment is net income and also the payout. We are fully committed.

We believe that the dividend is a normal flow for investors and also for public companies, and as I said, there is no the current metrics that do not point to any potential recession. Final decision will be made at the end of the - once we get the financial information for the third quarter.

But that's where all I can say, at this point. Sorry about that.

But fully committed with the shareholders, no recession so far in our financial statements, and the decision will be made once we have the financial statement as of the third quarter.

Thank you very much Fernando, and before you have some words of wrap up, I would like to apologize for the delay. We had today in publishing the documents on our website we had some technical issues, but all the documents are now available in mapfre.com.

And we hope this issue doesn't occur again. Sorry about that.

And from my side, I wish you a very nice summer and summer break for all of you.

Yes. Thank you.

Natalia. Yes.

A few final remarks that by the way, I mean, we changed yesterday and because of it, let's say that in general, I mean, the outlook for Europe is much better. There's just a lot of uncertainty with regards to duration and the severity of the pandemic and also the related economic crisis.

Nevertheless, today, let's say that today, we are optimistic about the financial measures being taken by governments and central banks worldwide, especially the European Recovery Plan. Most of all, I mean, we are confident about MAPFRE's capacity to weather this crisis.

Our businesses are very well positioned. Thanks to high levels of diversification multichannel approach with a loyal agent base particularly in Spain, healthy balance sheet and a strong liquidity position.

Furthermore, MAPFRE has been committed to helping our collaborators and society as a whole and this is strengthening our brand, especially in our main markets. Right now we're seeing flight to quality trend in insurance shoppers particularly in Iberia and LATAM, where MAPFRE has a great name recognition.

Thank you for your time today. Have a nice summer and above all, stay safe.

Thank you and bye, bye.

Bye.