Mapfre, S.A. (MAP) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Thank you, everyone, for being here with us today. For those who don't know me yet, my name is Felipe Navarro. I'm the Head -- new Head of Capital Markets and Investor Relations, among other responsibilities. It's my great pleasure to open the first edition of the MAPFRE Management Insights Day. We have decided to organize this event as a complement to the Investors day we held in 2016, '17 and '19. We will hear from members of MAPFRE's top management who will briefly go over recent business trends and priorities for this year. Antonio Huertas, our Chairman and CEO, will go over business lines and provide a strategy update after the recent AGM. Eduardo Pérez de Lema, the CEO of MAPFRE RE, will discuss the Reinsurance business. José Luis Jiménez, the Chief Investment Officer, will go over our asset management and investment strategy. And Fernando Mata, our CFO and Member of the Board, will discuss capital management and solvency. There will be a short Q&A at the end of the Reinsurance, investment and capital sessions. And at the end of the event, there will be a longer Q&A session to cover all other topics, including solvency. [Operator Instructions] Now to get things officially started, it's my honor to give the floor to Antonio Huertas. Antonio?

Thank you. Thank you, Felipe. Thanks to everyone for being here with us today. Good morning, everybody. During this presentation, I would like to go through the main highlights of 2020 and our priority for the year. I will focus on the group results as well as our key insurance operations: Iberia, Brazil and U.S.A. Although 2020 was affected by the headwinds from COVID and related economic crisis, it was a satisfactory year for MAPFRE. We made progress in the execution of our strategic plan, focusing on transformation and digitalization while consolidating profitability trends in insurance units. The largest impact from COVID was on the top line with premiums down 11%, mainly due to currency depreciation. At constant exchange rates, they were down around 4% as a result of the complicated environment for Life Savings. COVID-related claims were manageable, offset by lower frequency, mainly Motor. As you can see, combined ratio performance was outstanding with insurance units below 93%, helped by carrying out a strict cost-containment plan. In addition, we also carried out an extensive balance sheet review, strengthening our capital and financial position with a Solvency II ratio at nearly 184% at year-end. And finally, following recommendations from regulators, we applied a prudent valuation of intangible assets, resulting in a goodwill write-off amounting to EUR 132 million. Despite the challenging circumstances, we paid EUR 0.135 per share in dividends, optimizing shareholder returns. As you are aware, Iberia is our largest market with a little under 1/3 of premiums and over 50% of net profit. We continue to make considerable progress in our profitable growth strategy, outperforming the market in key Non-Life segments as well as Life Protection. The combined ratio finished the year at 92%, driven by lower frequency Motor with a combined ratio of around 85%. We maintained strict controls to help mitigate the impact of COVID-related expenses, including premium refunds to clients. Excluding these extraordinary effects, the ratio was down on the year. We are also focused on improving efficiency, and digital transactions have grown over 13%. We have also made progress in advanced analytics for client churn and conversion models. We continue with a multichannel approach. Digital business grew last year with VERTI premiums up 6% and MAPFRE.com policies up around 10%. Regarding bancassurance, the launch of our Banco Santander operations was a success, and therefore, we also extended the agreement to Portugal this year. Even in a complicated year, we are confident about the potential of this agreement. We have also closed several distribution agreements with Amazon, Correos, Iberdrola and Renault, among others. And this will become a source of new business. One of our main priorities last year was our portfolio retention plan to mitigate the effects of the crisis. And consequently, the cancellation rate is down 0.5 percentage point on the year. We have also been working on omnichannel cross-selling campaigns as well as value propositions from families and seniors. Our market shares have been relatively stable in the last few years with around 14% in Non-Life and a little over 11% on the total market. As you can see on the right, we have outperformed market growth in Homeowners, Condominiums and Life Protection, which are all short-tail segments. Premiums are down in Life Savings both for MAPFRE and the market as a whole due to the current interest rate environment. Motor premiums underperformed in the market last year as we were focused on defending our portfolio. We did this by applying discounts on a case-by-case basis on renewal, depending on the risk profile of each policyholder. In addition, we offered less comprehensive coverage for price seekers. As a result of these measures, MAPFRE's average premium fell 2% more than the market in 2020. We are continuing focus on growing units in order to benefit for future changes in pricing trends. On the bottom left, you can see that insured vehicles were up by 1.5% during 2020, reaching 5.8 billion units. MAPFRE insured units grew by over 121,000 vehicles during the second half of 2020, including Santander business, thus proving that MAPFRE brand attracts and retains policyholders effectively. Even with some Motor premium underperformance, we are still the market leader by far with a market share of 19.6%, over 5 points higher than the next largest player. That brings me to the next slide. These strong growth trends have been accompanied by excellent technical margins. The Motor combined ratio is down significantly in the year, 4 percentage points below the rest of the market. And profitability trends have also been strong in other retail lines like Homeowners and Condominiums with between 1 and 2 percentage point reductions on the year, outperforming the rest of the market. You can see in the chart at the bottom, we normally have a 1 percentage point efficiency advantage compared to the rest of the market. This gap closed slightly in 2020 as a result of COVID extraordinary expenses, including premium refunds given to clients as part of our portfolio retention plan, but the ratio is still at excellent levels. Uncertainty still remains high, and both premium growth and frequency trends will depend on mobility and economic recovery. The trends in 2021 are similar to last year. Non-Life premiums growth is relevant in most lines, while the Life Savings environment remains challenging. New vehicle sales will remain at low levels due to the economic situation and the lack of government subsidies. Our priorities for 2021 are gaining market share across key lines of business, defending our portfolio and cost containment. We want to gain market share across key lines of business and will be introducing market pricing in all personal lines and extending this to Life Protection business this year. We expect the Non-Life combined ratio to be around 95% with Motor between 91% and 93% for 2021. We will continue managing the low interest rate environment and have approved a new alternative investment plan to help mitigate the falling rates, as José Jiménez will go over the details in his presentation later on. Regarding bancassurance, our first priority is to optimize the Bankia exit value while also rebuilding the business lost from this channel and finding ways to enhance our existing agreements. As for digitalization, we will be increasing the collaboration of both VERTI and Savia with MAPFRE's sales network and reaching new agreements with digital partners while also focusing on data to generate business. We are also expanding our product offering, adapting it to our client changing needs with a focus on electric and personal mobility vehicles as well as the development of Motor products. Finally, we continue with our client segmentation initiative with specific value propositions for different client groups. Regarding Brazil, 2020 was an excellent year for our business there. Local currency growth trends were strong with premiums up in the bancassurance channel by around 15%, driven by Life Protection and Agro, while outperforming the market. The MAPFRE channel growth in industrial lines was solid. Motor premiums were down by 28% as we continued canceling nonperforming broker accounts. Underwriting margins were strong with a Non-Life combined ratio at under 88%, down by over 4 percentage points. And the Motor combined ratio was down by 7 percentage points to 100%. In Motor, frequency was down due to go COVID-related mobility restrictions, but there have also been underlying improvements thanks to the measures implemented over the last 2 years. These improvements helped mitigate headwinds from lower financial income and currency depreciation. We continue making progress in the execution of our strategy initiatives with several improvements in technical and operational management. We successfully implemented the group's fraud detection tool, PLATEA, and we have continued enhancing the entire internal control system. In addition, we are optimizing and converging technological systems. Cost-containing and efficiency improvements have been a top priority, helped by the implementation of intelligent automation and the growth of digital transactions. Regarding client orientation, we are focused on increasing the total number of clients and profitable distributors. You can see in the next slide, MAPFRE holds leading positions in many profitable segments in the Brazilian market. On the left, you can observe, we are the #1 player in the agricultural segment with 58% market share. We are also the leader in Life Protection with over 18% market share. Both segments have strong underwriting margins. In Motor, we are now the seventh player in the market with a little under 8% of market share, down as a result of our selective underwriting approach. In this segment, as you can see on the right, margins have improved significantly over the last 2 years as a result of portfolio cleaning and other initiatives are now more in line with the overall market. 2021 will be a transition year in Brazil as economic activity recovers, and we will continue consolidating the improvements we have made in technical management. In the MAPFRE channel, our main targets are to recover our competitive leadership position, focusing on Motor, Life and SMEs. In Motor, we will adjust processes and technology and improve our product offering. In Life, we are looking to identify more strategic distribution partners while staying focused on technical excellence. We want to reinforce our presence in SMEs by expanding offering for emerging risks. In BRASILSEG, we will continue leveraging our alliance with Banco do Brasil, providing competitive advantage and improving service quality, optimizing products that benefited most from Banco do Brasil distribution potential and also working to enhance the digital business. On the technology side, we are migrating to corporate solutions and enhancing data integrity. A new corporate technology platform for Life products have been created with new product launches planned for 2021. We have also introduced a multivariate tariff and a new IT tool for vehicle repair estimates while working on broad simplification. Regarding efficiency, smart automation and centralized service center will contribute to cost reduction. Let's go now with U.S. in the next slide. After several years of restructuring in the United States, we now have a very streamlined geographic presence, focusing on the profitable Northeast region, which now makes up 90% of premiums. In 2020, the attributable result in the U.S. was up nearly 37% with over EUR 110 million in the Northeast. The ROE of MAPFRE U.S.A. was 8%, excluding VERTI business, up over 1 percentage point on the year. The combined ratio fell to around 92% in the Northeast region, in part due to the lower frequency, mainly in Motor because of COVID, but also thanks to the streamlining and profitable initiatives. Last year, we exited Arizona and the traditional business in Pennsylvania. And this year, we are also going to close VERTI in this state. We also announced our intention to sell the business in Florida, which was delayed after the onset of the pandemic. Right now, we are evaluating different options for exiting from this state. Also, we are still managing the runoff of the Commercial Lines business outside of Massachusetts, which impacted our 2020 results. But this should be less of a problem going forward. A lot of progress has been made on the technical and operational side in the U.S. We have centralized the contact center. We continue consolidating IT systems. We introduced a new pricing engine, EARNIX. And we are also finding many different uses for advanced analytics, including A&C segmentation, policy life expectancy and straight-through processing models. We have also reduced our structural costs mainly our payroll with a 6% reduction in headcount in order to adapt our fixed-in cost to the new geographic footprint. As a reminder, in 2020, we also wrote down our legacy operating platform by EUR 32 million, which will reduce our depreciation expenses in the future. Regarding digital business, we focused our new business effort toward higher customer lifetime value. And digital represents now 10% of our new business in Massachusetts. In our main market, Massachusetts, MAPFRE is by far the leader in P&C personal lines. According to the latest available data in private passenger motor, we had a 22% market share at the end of 2019, 8 percentage points more than the next largest player with over 1 million insured units. In Commercial Auto, our market share is over 11 -- 12%, sorry, and 13% in Homeowners. Regarding profitability, we have improved our combined ratio nearly 4 percentage points in Retail Motor from 2017 to 2019, and Homeowners boasts excellent combined ratios. The year in the U.S. will be focused on a return to growth and strict cost control. Positive low ratio trends should continue. Specifically, we want to grow both new business as well as improve retention. And therefore, we will enhance the capabilities of our agreement with AAA motor club. We will also continue to boost the digital business, repositioning VERTI while expanding our digital offer in Massachusetts. Regarding efficiency and technology, we will continue moving ahead, leveraging a new Guidewire-based platform, which will move our spend ratio closer to our key competitors. We will also reorganize claims handling and operations with more focus on efficiency. Finally, we are improving our use of data through new capabilities, including elasticity models, policy life expectancy models and machine learning bodily injuries claims review.

Thank you so much for that. Very interesting presentation, Antonio. Now...

Wait I haven't finished yet.

Sorry. Please.

As our strategic plan moves into its final year, we are happy with the progress made so far. We continue to focus on transformation and restructuring and have successfully adapted our business model during this time in order to be able to leverage new opportunities. Our focus on profitable growth has led us to the renew of nonperforming business and over EUR 1.8 billion in premiums were canceled from 2016 to 2020. We also streamlined our geographic presence and product portfolio. In the United States, we exited 5 states in 2018 and left Commercial lines outside of Massachusetts in 2019. Last year, we exited Arizona and the traditional business in Pennsylvania, and are currently analyzing all options for Florida as I said before. In Brazil, we canceled loss-making portfolios in Motor, mainly in the brokerage channel. The assistance business continues to undergo a long restructuring process, exiting 13 countries over the last 5 years. Going forward, our focus will be on countries where we have presence through an insurance subsidiary. In the fourth quarter of last year, we announced the planned exit of ROAD CHINA, and restructuring charges were fully booked in 2020. Furthermore, we are revaluating the Travel Assistant business in Europe and Asia. Going forward, our focus will be in countries where we have insurance business. It's also important that we currently do not have appetite for the annuity business in LatAm. So we sold our portfolios in Peru a few years ago and the sale of run-off in Chile is still underway. Finally, we have decided that the leadership channel in VERTI Italy is nonstrategic, and we have reduced exposure upon renewals. In addition to that, we have also actively reduced our exposure to nonstrategic assets. We sold the nursing home business. We have reorganized our funeral services business in Spain, reducing our stake to a minority interest and selling nonperforming real estate assets worth over EUR 100 million. All these reductions and sales have freed up capital that is being invested in business development with high potential for growth and profitable returns. Last year was the first year of operation of our bancassurance agreement with Banco Santander for Non-Life products, mainly Motor and SMEs. Premiums were around EUR 19 million, which was good performance considering it was the first year and it's also coincided -- coincide, sorry, with the pandemic. We also extended the scope of the agreement to Portugal, and we are confident of the potential that our relationship with Santander has for MAPFRE's business. We have also closed and enhanced other distribution agreements focused on wealth and asset management companies, including Actinver insurance business in Mexico and increasing our stake in Abante this year in Spain. In 2020, we acquired the ARS Palic health business, which is already contributing to the LatAm North region significantly, both in terms of premiums as well as profit. All of these opportunities are profitable and have growth potential. In addition, we have continued investing in our alternative asset program in order to mitigate the fall in interest rates. On the initial first wave with a budget of around EUR 1 billion, around EUR 800 million has already been committed. We have recently approved a second wave for EUR 300 million, giving a total of EUR 500 million remaining to be committed in 2021. This will be invested mainly to European real estate and infrastructure. Finally, I'd like to comment on the termination of our Bankia bancassurance agreement. This partnership has been extremely profitable for both entities, but it's coming to an end. We are pretty pragmatic and we see the final outcome more as an opportunity than a threat. We have found a business niche with Santander, which looks very promising. MAPFRE will lookout for future opportunities and organic business development in order to increase the business growth and create more value for our shareholders. We have clear priorities going forward. We expect moderate but profitable growth with a clear focus on optimizing capital allocation. Capital will be focused on the core markets of Spain, Brazil, the United States and Mexico. Outside of these core markets, we expect lower future capital allocation with a few exceptions when they involve a strategic channel or business line. We will also continue with derisking on nonstrategic assets and operations. On the product side, our major expertise is in personal lines, and we will continue focusing on this segment. We want to recover and defend our position in Motor across geographies. We also aim to develop the Health and Life Protection business in Latin America, especially in the bancassurance channel. Regarding channels, we will continue developing our multichannel approach. Growth in the digital channel will be mainly organic, both through the VERTI brand and MAPFRE.com. To boost the growth, we will continue working to develop new distribution and bancassurance agreements. In addition to that, we will leverage growth opportunities in Reinsurance through MAPFRE RE. Later on, Eduardo Pérez, its CEO, will give more color about our business plan. Now I'd like to comment briefly on what we have seen so far this year. The trends we are seeing in the first 2 months of 2021 are similar to the ones we had in the second half of last year. Premiums are down around 5%, around 2% of increase at constant exchange rates, with resilient performance in Non-Life and lower issuance in Life Savings. The combined ratio is well under 95%, down over 5 percentage points with excellent levels at the insurance units. Finally, the attributable result was EUR 99 million, which is an excellent result and includes the impact of the north storm that took place in Spain in January. As we indicated with full year results, we expect a final net impact for this event between EUR 20 million, EUR 25 million for the group. So far, we are seeing a solid start to the year. This year is the last in the current strategic plan. As a reminder, at our last AGM, we didn't change our strategic commitments even though they were formulated a year earlier. The economic and market scenario has changed dramatically since -- during the last couple of years. Interest rates have trended lower in several markets, currencies have depreciated significantly and the top line has been affected by lower economic activity levels. However, the pandemic has also brought lower claims frequency. I would like to comment on the most relevant targets that we have established for 2021. We expect to finish this year with ROE of around 8.5% and a combined ratio around 95% in absence of large catastrophic events. In the current environment, we will grow prudently with 3% of premiums growth. Total revenue should reach similar levels of last year, considering the impact of the Bankia exit. Finally, we expect to finish the year with net income above EUR 700 million, excluding extraordinary items. In conclusion, 2021 will still be a year marked by uncertainty and volatility. Prudent management of our business worldwide with moderate growth and a strong focus on improving technical management will be key to our success. We will also advance with the digital and cultural transformation that is well underway, which is absolutely necessary to prepare the company for the challenges ahead. We are pretty optimistic that we will reach the target set for 2021 and that we can reach all of the strategic public targets as they were presented last year, with the exception of those related to revenues. We are progressing very positively in the execution of our strategic plan, and we'll continue working hard to meet our goals. This is now all from my side. Now I'll hand you over to Felipe to continue with the presentation.

Thank you very much, Antonio. Sorry for the interruption before. That was really very interesting. And now I think that things are moving to the Reinsurance. Eduardo, the floor is yours.

Thank you very much, Felipe. Good morning to everyone. As always, it's a great pleasure having the opportunity to give you some insight on the Reinsurance business in MAPFRE. Let me please start with a quick review of the performance in 2020. In terms of premium, the evolution has been positive given the environment last year in terms of economic activity and also the impact of currencies in our portfolio. At constant exchange rate, the total premium volume would have grown with a very solid 11.3%. Concerning results, obviously, 2020 was a very difficult year for the Reinsurance and Global Risk industry. And we were not immune to that. However, we showed resilience in a particular turbulent year. Please turn to the next slide to go into some more details. Premium development has been driven by excellent growth in the Non-Group Reinsurance business and in the Global Risk business. In both segments, we benefited from price -- from positive pricing momentum, particularly on the Global Risk portfolio, which has led to a better portfolio. Of course, 2020 will be a year to remember in terms of loss activity. In our case, of course, we suffered from COVID-related losses. In addition to that, the large loss activity was above budget, affected by a high-frequency of medium-sized losses with a particular incidence in the portfolio emanating from MAPFRE. This, of course, translated into our results. On the positive side, let me highlight the very good result of MAPFRE Global Risks, especially considering a difficult first quarter due to the earthquake in Puerto Rico. Of course, the results on the Reinsurance business was impacted by the large loss activity mentioned earlier, but also by the reduced investment result, which has declined significantly in the recent years, both due to the lower yields as well as realized gains. From an operational point of view, we also made good progress in fostering on our key competitive advantage, which is our best-in-class expense ratio. During the year, we made good progress in further optimizing and automating our processes and also improving further our risk management capabilities. If you turn to the next slide, we can review the impact of large losses on our Reinsurance portfolio. Of course, COVID-related impacts significantly led the year to -- 2020 to be the one with the highest loss burden in our history. We have separated these claims due to the special nature because they shouldn't repeat itself given the industry-wide clarification of coverage. Excluding COVID, loss activity has exceeded our budget, particularly affecting the business emanating from MAPFRE and in territories where market share is very high. Here, we should highlight the earthquake in Puerto Rico, the hurricanes Eta and Iota in Central America or the Gloria storm in Spain. In addition, the MAPFRE portfolio suffered above-average man-made claims. On the Non-Group side, we saw increased frequency of medium-sized events, being the most significant, the blast in Beirut, the derecho storm in the U.S. But overall, the large loss activity in the segment can be considered in line with expectation, of course, excluding COVID. Turning to the next slide, you can see the evolution of the losses related to COVID as we have been reporting during the year. Of course, the impact was significant, but after reviewing information, it's been below the market average. The main reason for that is the composition of our portfolio. It is slightly different to many of our competitors. And we are not exposed to certain lines of business that have been very heavily affected, for example, event cancellations. During the fourth quarter, we made a full review of the reserve and decided to take a conservative approach in reserving, in line with many of our clients. As we have been reporting the vast majority of our exposure comes from the Property BI side. Within that, the impact comes mainly from 6 jurisdictions and a very few clients. As you may appreciate, we have seen an increase of claims in the Life side, in particular, in Latin America. Across the portfolio, there is still significant uncertainty about the final outcome of certain cases, and litigation is ongoing both on the primary insurance level and reinsurance level. This can lead to a certain variation of reserves. Although we are confident with our current reserving level, we shouldn't see many changes. Turning to the next slide, we can take a longer view on the performance of MAPFRE RE. In that regard, you can appreciate that while 2020 was a disappointing year, we maintained our long-term trend of providing better results than the market in difficult years. While it's likely that in years with low large loss activity, our technical performance is slightly less profitable than the market. As previously explained, this is part of our strategy and is the base of our business model. If we turn to the next slide, we can dive a bit further into the 2 main business segments of the Reinsurance portfolio. If we look into our Non-Group business, this drives the result of the previous highlighted policy. Good average performance was comparatively lower volatility. This is based on a very well-diversified portfolio and an extremely efficient structure that allows us to operate at very low expense levels. Of course, due to the special characteristics of the portfolio, there may be circumstances where our portfolio can be affected. But overall, you may expect from us below-average volatility of results. Turning to the business coming from MAPFRE, the situation is slightly different. Here, MAPFRE RE is a powerful tool to optimize the group retentions, which allows MAPFRE to retain additional profits for the group in most years, but also absorbing a great part of the potential volatility that could affect the insurance portfolio of MAPFRE. 2020 was an obvious example of that. Further, it can be seen that in many years, the different footprint of both segments has diversification to the portfolio. Of course, there may be years where both segments may be affected by large event. But very often, the segments offset each other. If we turn to the next slide, you can see that over the years, this has led MAPFRE RE to perform well in the market in terms of average combined ratio and standard deviation, situating it at the point where we have -- aiming to be. Obviously, there are carriers that have achieved better average combined ratios that the one obtained by MAPFRE RE, but subject to a much higher volatility. Please turn to the next slide to review the solvency situation of MAPFRE RE. Of course, one of our key -- the key aspects for us is financial strength. In that regard, over the years, MAPFRE RE has been able to finance its growth through retained earnings. At the same time, it has been paying substantial dividends to its shareholders. Furthermore, the restructuring of MAPFRE Global Risk, in addition to the operational advantages, has had a very positive impact in terms of capital optimization, allowing the increase of shareholders' funds for MAPFRE RE, the growth of the Global Risk operations and the reallocation of capital into the Reinsurance business. Pending the final reviews, the expected Solvency II ratio as of the end of 2020 is around 190%, within our optimal range. Please turn to the next slide to review the outcome of the most recent treaties renewals, which will drive the outlook for the next few years. The last renewal periods have led undoubtedly to improvements across the whole portfolio. It's true that we still think that there is room and need for further improvement in terms of -- in terms and conditions in the following renewal periods. But the trend is positive and spread across the portfolio. Just as an example, in January, our Cat XL portfolio saw risk-adjusted price increases of 7.8%. Other improvements have been very frequent. In addition, already since April last year, the whole industry has been working in a clarification and excluding of pandemic-related coverage. As a consequence, the full portfolio today has a clear definition in that regard. In that environment, we have grown our Non-Group portfolio by roughly 8% at constant exchange rates during the different renewal periods in the last year, partially shifting our portfolio to the better-priced XL business. On the facultative portfolio, we have seen a very positive momentum in line with the Global Risk primary portfolio. On the other side, we foresee a slowdown on the Life portfolio, mainly driven by some large solvency-related transactions based on savings portfolios, which are shrinking as the primary markets due to the crisis. Moving to the next slide. Let me give you a quick update on our external Reinsurance program. Concerning protections of the MAPFRE Insurance Group, the policy presented in the Investors Day in 2019 is unchanged, as well as a structure that has proven its efficiency. The main renewal date for that program is first of July. Given the performance and strategic nature of our reinsurance relationship, we don't foresee issues on the renewal. The frequency cover on these portfolios has already been renewed as from January in order to have it aligned with the fiscal year. In respect of the retrocession program of MAPFRE RE, it has been successfully renewed at year-end. Structurally, it remains largely unchanged with the exception of a moderate increase of retention on our per event protection. The frequency protection remains unchanged in terms of retentions. Price adjustments have been in line with those obtained in our inwards portfolio, therefore, not impacting our margin expectations. As a summary, I would like to finish with a quick review of our outlook and priorities for 2021. First of all, MAPFRE RE should return to profitability and resume dividend payments in the absence of high frequency of large losses that we experienced over the last few years. MAPFRE RE will continue playing a key strategic role for the group through the -- both the Non-Group business and the MAPFRE business. Finally, no relevant changes are expected in our risk profile or footprint and Reinsurance protection should remain unchanged. Regarding our priorities for the year, the most obvious one is continuing our efforts to improve the margins of our portfolio, following a long period of suffering markets, but also the continuous decline of investment income. As we mentioned during last year, we made a complete review of our portfolio in 2020 that showed that the quality of the portfolio is good, of course knowing that there are always parts of it that will require more action. So far, the last renewals have been encouraging, showing that this is a wider market issue that has to be addressed across the industry. Of course, we keep the ambition to continue growing steadily in the portfolio if we are able to obtain risk-adequate margins. Further, we will continue working on keeping our cost advantage with peers by continuing with the execution of our products related to process optimization and automation. I hope in the last few minutes, I could give you a flavor of the situation of MAPFRE RE. We have suffered a couple of tough years, in line with the industry. But we are absolutely convinced about the quality of our portfolio and the ability of delivering sustainable results. Thank you very much for the attention, and I look forward for your questions now.

Thank you very much, Eduardo. That was a real clear explanation on quite a complex topic. The first question comes from Maria Ojeda from Bank Sabadell, and she's referring to the renewals on 2021. Could you detail which percentage of renewals is proportional XL or a fac?

Well, the renewals, we only refer to the treaty renewals because the facultative portfolio renews throughout the year constantly. In the Global portfolio, facultative will represent, excluding the Global Risk business, roughly 10% to 15% of the portfolio. And this is an ongoing process, it's renewed during the year. What refers to our Non-Group business, January renewals, the first that we had in 2021 will represent roughly 65% of our portfolio is already renewed. We are right now working on the April renewals. That represents another 10% to 15%, and the rest is mainly coming up in July -- June and July of 2021.

Okay. Thank you very much, Eduardo. There's one more question coming from Frank Harrison from Holborn. He says what level of rate increases were you able to achieve across your portfolio? Was this different from the U.S.-based business versus the rest of the world?

Well, as I mentioned, the easiest one to calculate this variation on the Cat XL business. As I mentioned before, we obtained on average in January at 7.8%. Probably July and April last year was a little bit more than that, also because it had been more impacted by loss activity. If we talk specifically about the U.S., on average, the increase has been bigger in the U.S. than elsewhere, mainly in Europe, which is the biggest renewal market in January. Also driven by 2 main reasons, there is bigger need of capacity for the U.S. and there, it's probably -- that additional need of capacity puts a little bit more pressure on the pricing. And also 2020 has been a very busy year in terms of CAT activity in the U.S. So that has been reflected on pricing as well.

Okay. Thank you very much, Eduardo. From Paz Ojeda again from Bank Sabadell. Related with the solvency ratio of MAPFRE RE, we are speaking about the 190%, which is in the optimal range. Can you detail which is your optimal range of solvency?

Well, our optimal range in terms of solvency is in line with the one of the group. So the real optimal would be 200%. But within EUR 190 million to EUR 210 million, we are comfortable with that, and that's where we are right now.

Thank you very much, Eduardo. There's a couple of questions from Frank Harrison at Holborn as well related with the Reinsurance business. Do you envision bringing any new products to the market in 2021, first of all? And second, do you want to expand your position in the U.S., either in insurance or reinsurance?

Well, in terms of new products, well, as you know, on Reinsurance, the product itself is pretty simple. It's on the treaty side, it's proportional and nonproportional and within that variation. So no big changes there. In terms of lines of business that we are covering, indeed, there are evolutions. There are parts of the business that we don't want to change. And specifically, if we talk about the U.S., probably we won't be entering the casualty space in that regard. But what we are doing is supporting new business initiatives of our clients. And we -- and specifically in the U.S., but also in many other markets, we have been supporting new initiatives, new products and new business models through reinsurance where we are very concentrated. And we have been successful in that regard in the last renewal, but also in previous ones in the last few years. Talking about possible expansion in the U.S. We have stated the U.S. is a growth market for us because comparatively to other carriers in the market, we are relatively underweight there. But -- and of course, the answer is, yes, we are growing in the U.S., and we'll probably continue growing in the U.S. But at the same time, it's true that we have to do it balanced with the rest of the portfolio internationally to keep the balance of the overall portfolio. So yes, it will be growing probably more than average, but it has some limits. It will be aligned with the rest of the portfolio.

Thank you very much, Eduardo. There are no more questions. Thank you very much for your questions. And Eduardo, of course, for your clear answers.

I would like now to give the floor to José Luis Jiménez for discussing the group investments and asset management. José Luis?

Thank you, Felipe. Good morning, everyone. During the coming minutes, I would like to share with you an overview about the economic outlook and an update of our investment portfolio. I will conclude with a few takeaways. As John Kenneth Galbraith once said, there are 2 kinds of forecasters: those who don't know and those who don't know they don't know. As I do not pretend to be in any of these 2 groups, I just want to show what's the average forecast for GDP growth according to Bloomberg. What it looks like is that we will face a decent level of growth in most of the countries where we carry out our activities. The expected trend in interest rates is [ upwards ] to -- as it shows in the 2 and 10 years bond yields according to consensus forecast as well. The improvement in terms of GDP growth is due to monetary and fiscal policies, although this could bring some inflation pressures. On this slide, we would like to share with you an update of our balance sheet and third-party assets that we manage at MAPFRE of EUR 55.2 billion, taking into account both components, EUR 44.9 billion of balance sheet assets. It is worth remembering that asset related to our JV Bankia MAPFRE Vida are excluded from this picture and most of the real estate properties are denominated at net book value. On the right-hand side, you will find the breakdown of the balance sheet. Financial investment, which totaled EUR 36.5 billion include fixed income, equity, mutual funds and derivatives, mainly swaps that are included in other investment. Regarding accounting methods, the mass majority of financial investment, over 82% is available for sale, 30% is trading portfolio and the rest is held to maturity. In terms of asset allocation, 86% is fixed income and more than 7% are stocks. We manage a very conservative and prudent portfolio with more than 87 fixed income securities with an investment-grade rating. Almost 75% is allocated to sovereign bonds, of which nearly EUR 30 billion in Spanish bonds and EUR 2.4 billion in Italian bonds. Our equity allocation is almost 99% invested in European and U.S.-listed companies. Real estate assets include more on EUR 1 billion from own use and EUR 1.3 billion for third parties. It is accounted at net book value with about EUR 870 million in unrealized capital gains. Unit-linked portfolio is 50% invested in equity and 50% in fixed income, approximately. Regarding other investment, it is mainly swaps, deposits established for acceptor reinsurance and investment with equity method accounting. Swaps [ are covering ] position in cash flow margin portfolios. As we have always indicated, MAPFRE investment portfolio is very conservative. In the Life business, all of our immunized and conditioned portfolios have longer duration and higher yield than our liabilities. Asset and liabilities are in the same currency in all the countries where we sell Life Saving policies. Most of the business is located in Spain, followed by Malta with our private sharing product, Colombia and Mexico. From the EUR 36.5 billion at the end of December last year, 60% is allocated to Life provision and the rest in Non-Life reserves. The Non-Life portfolio has a slightly more equity exposure. In the different tables, we describe the type of portfolio management applied to different portfolios. We would like to highlight that this chart reflects an internal management policy more conservative and prudent than the legal and regulatory requirements. When we refer to immunized portfolios, these are completely matched according to cash flow or direction techniques. In this case, unrealized gains belong mainly to policyholders. Also, for conditioned actively managed portfolios, a big part of this unrealized capital gains are attributed to policyholders since these portfolios are with profit kind of or seeking for any specific return to be achieved. Life portfolio in the international area is mainly located in Malta where -- with fixed product remains the most common product in the marketplace. All the unrealized gains of free actively managed portfolios belong to Shareholders. Regarding Non-Life portfolio in the right-hand side, most of the investment are free actively managed. The [ EUR 1.0 billion ] immunized and conditioned portfolios in Non-Life segment are related to burial business. Since last March, we have further derisked our exposure to companies and sectors that could be more affected by COVID-19, especially in the fixed income side. It is worth remembering that we have a significant lower exposure to corporate bonds compared to our peers. Our minimum rating for this asset class is investment-grade according to group investment policy. We are overweighted in sovereign bonds, especially in Spain and Italy. All assets are in the same currency than liabilities. But just in a few countries where we deal with more FX volatility, we hold bonds and bank deposits in hard currency, for instance, in Argentina, in Turkey and Venezuela. In the equity side, we are confident with our exposure in our active managed portfolios with a strong value approach. Most of our exposure, around 99%, is invested in European and U.S. companies. We managed during last year, despite the huge market volatility, with nonimpairments and with capital gains in this asset class. We expect to increase this buffer for 2021. Our top 10 holdings in listed equity amount to 30% of our total equity exposure. On the other hand, accounting yield is holding up pretty well above market yield. Fees income portfolios are quite stable. In Non-Life, a reduction of 30 basis points per annum in the book yield will be a central scenario if we do not take any action. In Life, we are very comfortable due to the size of immunized and conditioned portfolios. There is no mismatch or potential risk here. On the other hand, thanks to the same levels of rates, when these policies were sold, there's extremely low cancellation rate. U.S. and Brazilian fixed-income portfolios has also performed extremely well. In U.S., protecting the book yield and in Brazil by increasing more than [ 30 basis points ] during the last 6 months. We are expecting a tightening interest rate cycle in Brazil this year and a more stronger real. MAPFRE became a signatory of the Principles for Responsible Investment of United Nations in 2017. And since the following year, we have started to measure the quality of our portfolio as an asset owner. We achieved an A rating since the beginning, and we have a significant -- and we have significantly improved in terms of ECG (sic) [ ESG ] quality. In 2020, more than 85% of the portfolio have a score high or very high, only 0.7% low and 1.22% medium. We are following integration of ECG as part of our investment process, and we aim to cooperate with those companies, so with lower ratings. Among the securities with no rating, these are mainly mutual funds, which are pending on Sustainable Finance Disclosure Regulation, which has been launched last week. In this slide, we would like to share our contribution to the SDG in the different asset classes of our portfolio as well as how we have done last year compared to 2019, the first year we made this information public. The current SDG refers to those MAPFRE has selected as priorities for us. The index range from 0 to 100. 0 indicates that the company activity contributes nothing to the SDG, that none of the company's material sustainability parameters contribute to that social development goal (sic) [ Sustainable Development Goal ]. Therefore, its activity is unrelated to it. And 100%, that's all the company activities contributing to the social development goal. For example, that all that company material parameters contribute positively to the SDG. Regarding our investment strategy, we will keep our book yield as high as possible without increasing the risk profile of the portfolio. We could even decrease our corporate credit exposure if the spreads widen. In our equity allocation, we favor a long-term approach. We do not expect capital gains unless our Investment Committee agrees in switching sector companies depending on the market circumstances. It is important to note that we still have a lot of leeway in terms of portfolio diversification. According to the chart in the right-hand side, we hold less than 1/3 of our peers in alternative. For the reason, we are setting up alternative funds in real estate, in private equity, in private debt and renewable energy with world-class partners and with our co-investment philosophy. And last but not least, we will continue working with an integrated approach to ESG factors in our investment process. In conclusion, looking forward, we expect some tailwinds coming from the macro picture, GDP growth, interest rates and FX. But as they old saying makes clear, "We hope for the best but we plan for the worst." Our investment portfolio is very conservative. Since last March, we have further derisked risk corporate credit. On the Life business, the focus is in developing innovative unit-linked solutions and mutual funds, protecting the book yield, the accumulation of capital gains in equities, an increasing balance sheet diversification in the alternative space, our main lines of action. The ECG quality of our investment portfolio has increased significantly since 2019. More than 86% of our assets with rating have scored high or very high. For the second year in a row, we are measuring our SDG impact, which is running in the right direction with an improvement in 49% of the goals compared to the previous year. Thank you very much.

Thank you very much, José Luis. That was really interesting and very clear. We are going to take some questions right now. I mean Mario Ropero from -- sorry, from Bestinver was asking -- and I think Paz Ojeda from Bank Sabadell, she has a common question with him, related with a 3 basis point rate decline in the Non-Life if no action was taken. The question is what is your central scenarios and the measures you are taking for this?

Well, unfortunately, I would say the scenario change day after day. Right now, we are seeing some increase in inflation. We do not expect a big movement from central banks. We think this is a transitionary inflation process. But we see an opportunity to increase duration. If interest rate goes up, we will do it. Traditionally, year after year, we manage our fees income portfolio very actively. Right now, we prefer to the risk, but we will see the opportunity. We could even increase or make a higher duration.

Thank you very much, José Luís. Paz was insisting on what kind of measures were you taking to prevent this yearly reduction, but I think this has already been answered. We have received the following question as well. Are you going to modify your asset allocation in the scenario where we are seeing an uptick in the interest rates? More specifically, were you going to modify your policy regarding alternative assets?

Well, to be honest, I think we are extremely lucky having this leeway in terms of balance sheet specification. We probably entered into alternative space later than our peers. And thanks to the crisis, we have taken a good opportunity to buy at decent prices. Our philosophy when we move, as long as some of the bonds reach maturity and we have to diversify the balance sheet, we are extremely prudent for the reason we prefer to follow a philosophy of co-investment with world class partners. To give you an example, I mean, we launched infrastructure-- and renewable energy fund with Macquarie, probably the largest infra manager in the world. We did the same in terms of real estate. We are co-investment -- making co-investment with Swiss Life, a partner. We are making co-investment with GLL, the real estate arm of Macquarie in Europe. And we have more partnerships on the table. We are seeing a lot of opportunities in this space. Right now, we are putting some kind of focus on renewable energy. We want also to contribute, as we have said to the SDG. So we see an opportunity to increase by breaching returns of 5% in a very cautious way by co-investment with partners where we assume both risk and return. I think we will move forward. But as in one of the slide, we have pointed out, this is just 1/3 compared to the exposure of our main peers. So we have margin of [indiscernible]. We will increase it slightly, step by step. We are not in a hurry. So we really believe we can defend really well our booking yield, our income looking forward.

Thank you very much, José Luís. There's a new question coming from Paz Ojeda from Banco Sabadell. Says, "MAPFRE expects increasing rates going forward, but at the same time increase the portfolio duration from -- in the fourth quarter 2020 from 1.4 to 3 years. That is related with Brazil. Wasn't it a bit premature?"

Well, I wouldn't say so. I mean this was a decision that we discussed after the summer last year and I think the timing was good. But you have to look at the decision by September last year, not right now. Looking forward, in Brazil, we see some improvements. Probably I wouldn't say that the worst is over in terms of the economic activity, in terms of FX. But we really have the feeling, I wouldn't like to say the forecast, but just the feeling that probably the Brazilian federal bank will rise rates sooner than later, hopefully, in April. And also, it has to be seen what happens in the U.S. , which probably will affect most of the emerging markets and especially in Latin America. So the -- I would say our prospects for Brazil are good. And probably, we expect higher rates and a stronger real, as I've said, in 2021.

Thank you very much, José Luís. There are no more questions. Thank you all for your very interesting questions. And now we go for the final presentation that will be from Fernando Mata that will go over the capital markets and solvency. Fernando?

Thank you, Felipe, and good morning, everyone. My presentation will cover the main topics regarding capital and solvency. On the left, you can see the breakdown of our capital structure, which amounted to almost EUR 13 billion at the close of 2020, 67% of which corresponds to equity. The slight drop from 2019 figures mainly corresponds to currency movements compensated by higher net unrealized gains of the available-for-sale portfolio, which was referred to by José Luís during the previous presentation. These gains recovered after the fall in markets during the first quarter. Noncontrolling interest have remained fairly stable with a small net increase due to bancassurance agreements. Increase in debt from 2018 is due to bank debt, which was used to finance bancassurance agreements in Spain, Bankia network expansion and new agreements with Santander and also the acquisition of a health subsidiary in the Dominican Republic. Regarding the already mentioned Bankia bancassurance termination, I would like to say that the noncontrolling interest includes EUR 237 million equivalent to Bankia shareholding in our subsidiary. In addition, debt included EUR 161 million in loans, financing recent Bankia-related acquisitions. On the right side, you can see the breakdown of the different components of shareholders' equity. In 2020, shareholders' equity fell by under 4% due to -- around EUR 8.5 billion because of currency conversions differences for emerging markets -- emerging market currencies were affected by the coronavirus crisis. Despite this complicated scenario and the volatility throughout the year, we have managed to maintain an adequate equity base and a solid foundation of our rating and solvency levels. At the bottom right, you see how unrealized gains and losses fluctuate from year-to-year, reflecting swings in markets. In the long run, we can see that both effects have tended to compensate each other over time. In order to keep our capital base stable, retained earnings are needed to offset net variations in the equity position and also to finance growth. 2021 should be a year of accumulation in unrealized gains in equities to protect our capital base in a scenario of rising interest rates. This slide provides information regarding the main currencies that affect our equity base. Historically, the U.S. dollar has played an important role as a natural hedge on our balance sheet, evidencing the benefits of our diversification policy. However, last year, it depreciated against the euro 8.2%. 2020 was also impacted by the significant depreciation of the Brazilian real, the Turkish lira and the Mexican peso. You also have on this slide the equity sensitivity analysis with the U.S. dollar again being the most relevant. However, year-to-date, the U.S. dollar is performing well with an appreciation of 2.2%, offsetting the impact of the Brazilian real, down 4.5%. The Turkish lira is also on the right path, appreciating 0.4% against the euro in these first months of the year. I can conclude that movement so far this year could have had fairly neutral impact given sensitivities. The far right column shows a MAPFRE economic estimates for these currencies for 2021. The outlook seems more stable than in 2020, an extraordinary year in every sense. So the potential impact of currencies to our equity base should be manageable. Regarding hedging policies, as a general rule, MAPFRE does not hedge for investments in emerging countries on our balance sheet due to the intrinsic cost. However, hedging instruments are commonly used for inflow for dividends from Brazil and U.S.A. On the left, you can see the breakdown of our outstanding debt instruments. Our credit metrics remained quite strong with leverage around 23% and pretty stable through the cycle. Total financial debt stood at under EUR 3 billion at December 2020, in line with the previous year. The current average cost of the holding company debt on the right is around 2.5%. You also have the breakdown of financial expenses below. We also have significant debt capacity in both Tier 1 and Tier 2 considering Solvency II limits. We would like to highlight again that we would only add on new debt for acquisition purposes, if needed. And so far, we are not playing any new issuance. As we mentioned, bank debt includes EUR 110 million and EUR 51 million in bank loans maturing in 2026 and 2024, respectively, used to finance acquisition from Bankia, Caja Granada and Caja Murcia, which merged with Bankia MAPFRE VIDA in 2020. We are analyzing the possibility of canceling these loans in 2021 in the current MAPFRE Bankia framework. Now let's move to Solvency II. First of all, I would like to remind you that the current framework approved by the Board since the inception of Solvency II remains unchanged at 200%, plus or minus 25%. The figures confirm MAPFRE's strong capital position and low volatility. 2020 year-end figures are provisional because we have reported them to the Spanish supervisor only for European financial stability purposes. The solvency ratio stands at 184%, 170% fully loaded. Final figures will be reported to the supervisory in May, an update of the 2020 Solvency II figures and the related sensitivity analysis will be, as usual, presented in the first quarter 2021 that we will present it next month. Solvency II ratio fluctuates in the 180%, 190% range. And in the first quarter of 2020 due to the COVID-19 crisis, the insurance industry had its most severe stress tests since Solvency II implementation. As a result, due to a prudent approach in underwriting and asset risks, MAPFRE only reported a 10 percentage point drop in the Solvency II ratio. On the right, there is a full disclosure of the different components of basic SCR, which has been quite stable. Finally, bear in mind that the phase out of our transitionals is lowering the ratio by around 1.4 percentage points per year. On this slide, we disclose the Solvency II ratio from most relevant units. MAPFRE VIDA is outstanding at 483%, the highest solvency ratio in Spain, among the largest entities. This figure corresponds to individual basis calculations. And the increase starting in 2019 is due to the implementation of the internal model for longevity. MAPFRE policy regarding capital buffers is quite defensive, allocating cushions to operating units in strong currencies, particularly units in Spain, MAPFRE RE and U.S.A, which generally have ratios above 200%. Brazil and Mexico also have a strong local solvency equivalent ratios of 174% and 150%, respectively. Regarding fluctuation in 2020, the increase in Brazil is due to lower risk exposure while maintaining equity levels and the drop in MAPFRE RE in 2020 is due to lower earnings generation. Now let's talk about the outlook for solvency. Yes, the figures comes up. Yes. On the left, you can see the provisional Solvency II figures for 2020 year-end at 183.5%. We expect approval of the longevity internal model in time to apply to this calculation. And considering this, as well as further fine-tuning of the provisional figure, we expect the final ratio to be above 190%. The process for diversification benefits of the matching adjustment, which we have mentioned in the past, will take longer and the impact will be reduced as well as a result of the Bankia exit. Concerning this Bankia exit, it will entail a 5 percentage point additional uplift, assuming no change in eligible own funds. All in all, we will be around our comfort range middle point. On the right, you can see the International Capital Standard (sic) [ Insurance Capital Standard ] or ICS disclosure. This is the first time we are providing this information. Bear in mind that both data, the ICS and the Solvency II ratio, are 2019 figures for comparability purposes. Both models use the same standard formula structure, though they apply different capital charges and credit for diversification. ICS represents a better picture of MAPFRE's solvency position with a ratio well above our midpoint of 200%. Now let's talk about cash flow upstreaming in MAPFRE Group. Our policy governing dividends is based on: first, dividends from operating units should be sufficient to cover MAPFRE S.A. dividends to shareholders, holding expenses and other payments, interest expenses basically, and cancellation of intercompany balances from previous transactions and reorganizations; and second, operating units should finance their organic growth with earnings retentions. Cash inflow upstream from subsidiaries in 2020 was around EUR 540 million. And as you can see, there is a proper diversification of dividend contribution from different regions and units with Spain being the most important. I would also like to point out the important contribution of dividends from the U.S. and Brazil as well as the rest of LatAm even in accomplished context with so much currency volatility. Going forward, our intention is that the group lowers its dependence of upstreaming from Spanish entities as other units such as Brazil or LatAm gain importance on the total share. Also MAPFRE RE has not paid any dividend due to a complicated year in 2020. And going forward, we expect this unit to recover its sustainable dividend payment record. I would also like to comment on the high U.S. average payout figure, which amounts to 133%. In [ 2019 ], we decided to upstream excess cash. The normalized payout ratio for the entity should be in the range of 50% to 70%. Regarding outflow, EUR 416 million were used to pay 2020 calendar year dividends and around EUR 120 million, EUR 130 million on average are allocated to cover overhead payments and interest expense. This slide shows our dividend history over the last 10 years, both dividends paid against results and during the calendar year as well as the trend in the price-to-book value and payout ratios. The Board decided to lower the 2020 dividend in order to find a balance between our commitment with shareholders, the current COVID and regulatory context and our capital and solvency position. This is not the first time we had to lower our distribution of dividends after applying our prudent approach. We did it in 2012 in the context of the financial crisis. However, what is relevant here was our commitment to recover the sustainable dividend path. We did it in the past, as you can see in this slide, and we are committed to do it again. As we have mentioned before, Bankia proceeds will help us achieve it. Remember, the dividend policy in the long run is 45% to 65% payout. Short-run guidance was set at the AGM at a minimum of 50% and has been at this level since 2012. As we have always emphasized the main driver for the dividend is net income. I would like to leave you with a few key takeaways. We expect shareholders' equity to move in a range of EUR 8 billion to EUR 9 billion, closing the similar figures as in 2020. We expect no relevant changes in the unrealized gains on the available-for-sale portfolio as higher gains from equity should offset reductions in fixed income gains caused by any potential increase in yields. Currency conversion differences are expected to be less of a drag than in previous years based on a slight appreciation of the U.S. dollar and minor depreciation from emerging markets currencies. Furthermore, the goodwill and other intangibles cleanup we have carried out over the last years removed uncertainty from our balance sheet. And regarding Solvency II ratio, we expect the longevity risk internal model to be fully implemented. And regarding leverage, our financial needs are fully covered. All in all, I want to reaffirm a stable dividend policy based on net income and a 50% minimum payout, which remains unchanged. Thanks. That's all from me. Thank you. And Felipe, I think we can take a couple of questions right now.

Yes. Thank you very much, Fernando. That was a very thorough explanation on those subjects. Okay. The first question comes from Ashik Musaddi at JPMorgan who would like to know how do we think about cash upstreaming in coming years from MAPFRE VIDA, so much Solvency II ratio there and from MAPFRE RE?

Yes. First of all, MAPFRE VIDA, as I mentioned, the Solvency II figures corresponds to the individual basis financial statements. I mean, the Solvency II ratio is lower, I mean, for consolidation purposes. But MAPFRE VIDA is a good -- has been a wonderful dividend contributor for the last 4, 5 years. And I guess we will remain the same path, I mean, in the near future. And they have to keep this higher-than-average Solvency II because they need to have fresh cash as well on the balance sheet in order to buy assets before marketing life-saving products. Regarding MAPFRE RE, as I mentioned, we had to give them a push. And in the future, they had to retake the stable dividend path that they did in the past in a more or less 50% to 60% payout range. And that's basically for both entities.

Thank you very much, Fernando. Paz Ojeda from Banco Sabadell. She would like to ask, do you have any other internal models underway in the group?

Thank you, Paz. Not at the moment. And the only partial model that we have was for longevity. For Bankia, MAPFRE VIDA, the Board decided to remove this authorization that was filed with insurance supervisor. What we're working is in a couple of USPs, and the one was approved for Germany last year and we're working for MAPFRE Spain as well in order to have those models that everybody agrees that they reflect in a better way, I mean, the risk profile of our business.

Thank you very much, Fernando. Seems that there are no more questions in this section. That was very interesting. Thank you very much for everybody that brought the questions to the floor here. And we're going to take a quick break, and we will move after for the general Q&A -- question session and for our final closing remarks from our Chairman. Thank you very much. [Break]

Welcome back. Let's move now for the final Q&A session. Okay. The first one comes from Ashik Musaddi of JPMorgan and there are a few questions. The first one is related with why it's the expected combined ratio high in Spain for 2021? Most other insurance are trying to improve year-on-year. Antonio?

Yes. As you know, Spain Motor insurance, Spain is a very competitive market. And we think that we have all the plans implemented to maintain our current technical ratio. It's true that the current combined -- the combined ratio that we got last year was helped by the mobility restrictions. But we are, nevertheless, very positive because we think that having even an increase, we can maintain a good profitability from this business in the next years. In any case, the situation after the pandemic is still very, very uncertainty in terms of tariffs in the Spanish end market because each company has taken a different approach to apply discounts. In our case, we are analyzing case-by-case the evolution of the claim ratio for each customer. We are applying discounts directly in the renewal of these customers to apply in parallel the reduction of frequency with a reduction in tariffs.

Thank you. Thank you very much, Antonio. Paz Ojeda from Banco Sabadell would like to know what pricing actions will you take on personal lines Iberia, especially in relation with the guidance of a 95% combined ratio versus 92% in 2020? Do you expect a competitive market environment?

Yes. As I have said before, Spain is always a very competitive market. We work in a country with strong domestic and international companies are playing. So we need to do our best to maintain our leading position in the Spanish market. In terms of pricing, I said that we are using sophisticated market pricing skills, applying discounts and the improvements in the prices to our current customers. Also with the family's plans and other plans that we are having -- we are running now, we are applying personal prices to our customers to maintain our competitiveness. In any case, we think that we have strong skills. We have shown during the last few years better ratios in technical skills than our competitors. And we still maintain a strong advantage in terms of claims and spend ratio. So our combined ratio will be better comparing with the average of the market.

Thank you. Thank you very much. We have now one question related with U.S. business. Ashik Musaddi from JPMorgan has a question regarding the U.S. business. First of all, is there a reasonable way to exit the U.S. business completely and deploy that capital somewhere else or return back to investors?

Thank you for this question. But the answer is simple: no, we are not seeing any complete exits from the States. We have defined U.S. as a strategic market, and we are applying a very strict plan to reduce our presence in many states, as we said before. Nowadays, we are very happy with our footprint in the U.S., taking into account the plans that we have already released about our exit in Pennsylvania, the sale of Florida business and the focus of [ Property ] in Massachusetts. So for that reason, we think we have to take advantage of our presence in the first insurance market in the world. And for that reason, MAPFRE would like to stay and to have better results in coming years.

Thank you. Another question from Paz Ojeda from Banco Sabadell. She has another question related to Brazil. In 2019, you announced a cost savings plan for -- of BRL 100 million in Brazil. Would you comment how much has been implemented, and if you see any further savings potential?

Before Fernando can say more words about this question, I'd like to say that in Brazil, as you say, we started with a cost containment plan last year. But because of the pandemic, we didn't develop well or completed the plan. So we took some measures that we have applied during the last year, but we expect to reinforce the plan during 2021 and 2022.

Yes. Complementing what Antonio said, the 2 main actions that were planned at that point, it was the reduction of personnel expenses. We reduced our head count. And also, we moved from current premises, from the old premises, to a cheaper building. So let's say that, all in all, I mean, we completed the budget of expense reduction.

Thank you very much. Paco Riquel from Alantra has the following question related to Brazil. Since the unwinding of the JV with Banco do Brasil, your market share in Motor has decreased from 11.5% to 7.7%. And your ranking has fallen from the second to the seventh. How do you see the -- your competitive position in the Brazilian market in Motor? Is the technical margin in Motor has improved to levels in line with the sector average? But how sustainable is the combined ratio given the smaller size unlike the normalization of the frequency of claims?

Yes. Thank you, Paco. I can say that we are still a strong player in Motor in Brazil. In the last few years, our combined ratio in this line in Brazil was not acceptable, so we decided to start a new plan for recover profitability in the current strategic plan. Now we have new tariffs that -- which we use using market pricing, thanks to [ earnings ], as I said. We have changed claims procedures. We have improved and introduced new strict risk guidelines. And we are still -- we are still developing our plans. So we think that we can get most of our current technical skills improving our claims ratio. Nevertheless, we still have a problem in Brazil. As you know, probably we have a higher spend ratio than our competitors. So we need to improve this ratio following the current -- the current cost contain-tion plan. And we should improve this ratio in the next 2, 3 years in order to have a more -- better competitiveness and to maintain a good technical development. Combined ratio is still -- for Motor is still a challenge because we -- in our channel because the business come from -- coming from Banco do Brasil shows better development, but the business coming from our broker channel needs still many, many improvements to maintain the average of the market.

Thank you very much. Carlos Peixoto of Caixa BPI asked, could you please update us on the situation on business interruption claims? Namely, how much potential litigation claims related with COVID-19 without material damage? I think that Eduardo can help us with this.

Yes. Thank you for the question, Carlos. I would say the evolution recently hasn't changed much in terms of litigation on business interruption, and our view didn't change much compared to year-end. I would say, first of all, we are not seeing a very bad development in terms of BI losses without material damage. The vast majority of the outcomes of litigation so far has been in favor of insurance companies where we have been providing business interaction coverage and we have stated that it's linked to material damage. The outcome has been so far positive pretty much everywhere in the world where it happens with some exceptions that are probably more anecdotical than real broadband. There is still evolution on the BI claims and there is litigation. But those are in cases where there is no clarity about the condition that there needs to be material damage to cover. This is the case in relatively few jurisdictions and not happening across the whole portfolio. It's -- as I mentioned before, it's limited to very few jurisdictions and relatively few companies that have been providing coverage in the past, which wasn't clear. In that regard, we haven't changed much our views on that and we are in the same situation. When we go into litigation, the other big part of that is -- or litigation or discussions among clients and reinsurers is about reinsurance coverage of certain BI claims and how they can be aggregated and there are certain types of reinsurance coverage. This is ongoing, but we have taken measures. We have reserved adequately for that, and we think that we should be comfortable that the current reserving level should be covering the outcome of current litigation unless things go very different to what is planned, but we are comfortable with the reserving level that we have.

Thank you very much, Eduardo, for giving that peace of mind. Paz Ojeda of Banco Sabadell, she has a question related with the guidance that we are providing. We will report -- when we report our net result adjusted for catastrophes and capital gains of EUR 700 million for 2021 versus EUR 763 million for 2020 with a stable combined ratio of around 95%, what is the reason for the expected fall of around 10%?

Yes. Thank you for your question, Paz. If I remember well, there were many, many explanation, I mean, for the gap between EUR 760 million and EUR 700 million, but roughly talking we had to just give you 2 reasons. First is a decrease in Life profit contribution basically due to 2 factors. I can't tell you exact number, but was Bankia and the other was the increase in COVID-related claims in LatAm, particularly in 3 countries. And there was lower financial results due to the current low-yield scenario.

Thank you very much, Fernando. There's a series of questions coming from Paco Riquel from Alantra. First of all, you mentioned in the AGM last week that the MAPFRE share price is highly undervalued. Why don't you reinvest part of the proceeds in the Bankia joint venture and buying back your own shares? Second one is related to business. In what business area or geography is more likely that you would amp reinvesting the proceeds from Bankia joint venture? And Paz Ojeda of Banco de Sabadell would like to know, would you like -- when you talk about rebuilding the channel on the bancassurance, could you explain if you refer to looking for new agreements?

I'll start with a good -- first part of the question. It's -- as we have said in our AGM and other forms, We need to think that MAPFRE needs to grow in the coming years. Nevertheless, we know that the Bankia proceeds could be very important in our results this year. For that reason, we have already said that we -- that these proceeds will be part of the MAPFRE net income -- a part -- will be part of the MAPFRE net income during 2021. And this will be part of the payout -- dividend payout of the year. But we have to consider that MAPFRE, we would like to increase its presence in some strategic markets, as we said, U.S., Spain maybe or even Mexico or Brazil. We don't have plans to invest now any amount of these proceeds, but we should think about it in order to maintain our growth expectations for the future. In any case -- just in case, we can use part of these proceeds to reinforce part of our balance sheet, but it's not now in mind because we don't oversee any new impairment in terms of any reversion of business expectation in any markets. Fernando?

Yes. That's basically -- I would like just to reinforce what Antonio, what the Chairman said, that if you see our quite recent history, track record of new capital deployed basically were digital business and also bancassurance agreements and most of them was on mature markets. So let's say that if there is an opportunity, we'll go for it, but only with, I mean, on these geographies and on those businesses.

Thank you. Thank you very much. We have another question coming from Paz Ojeda, Banco Sabadell. In LatAm South and LatAm North and EMEA, we are not currently within the main markets. Will you limit its growth capital allocated of the noncore businesses?

As everybody knows, Latin America is very, very important for MAPFRE. We are the leading company in P&C, have strong presence in Life also. We have 2 main markets in Latin America, Brazil and Mexico, and both are strategic. So we want to develop more our business there. But we think that we don't need to increase our capital allocation in this market, but we have very, very strong companies with strong capital positions. In other markets in Latin America, North or South, we are going to maintain a strict control of our growth in order to maintain our current capital position. So our expectations are moderate in Latin America because of the crisis coming from the postpandemic situation, and we are going to be very strict with our growth in the main markets of this region, maintaining our strategic ambition about Mexico and Brazil.

Thank you. Thank you very much. Paco Riquel from Alantra has the following question on targets. Regarding the EUR 700 million net profit guidance for 2021, what is the contribution from the Bankia joint venture that you are factoring this guidance? Full year? Half year only? What is the amount of realized capital gains that you have factored in the guidance, the EUR 100 million run rate seen before the crisis?

Yes. Thank you, Paco. As I mentioned in the previous question from Paz, we lowered our profit contribution from Bankia for this year. Bankia MAPFRE VIDA is still in the balance sheet. What we don't know at the moment is when the transaction date will be, I mean, January, June or December. But I mean sorry about that, but this is quite sensitive -- or it will be quite sensitive answer from my side and I'm not in a position, I mean, in the current Bankia context to give you any indication of future results from this subsidiary. Regarding capital gains, and we factored 0 capital gains in the EUR 700 million guidance. And so it's a full comparable with this EUR 662 million underlying profit from last year.

Thank you very much, Fernando. Carlos Peixoto at Caixa BPI has a few questions related with the future combined ratio development. Are they -- there any expectations on claims impacts from recent snowstorms in the U.S.? What's your expectation for the combined ratio in Iberia for 2022, 2023 assuming a more normalized scenario without mobility restrictions? What are your expectations for the combined ratio in the medium term?

Fernando, please.

Yes. I'll take the last question and I guess Eduardo Perez will discuss on the U.S. snowstorms. We will give you a full disclosure for the 2022, '23 because next year we will approve at the AGM a new strategic planning for this 3-year period. But let's say, in the current scenario, the combined ratio should be in that range between 94%, 95% in order -- and we had to reduce combined ratio in order to compensate part of the financial income due to the lower accounting year. So that's basically from my side. So regarding U.S. snowstorms over Texas, Eduardo?

Yes. Thank you for the question. We -- of course, it's very early days, we have to say. The event happened just a month ago, so 4 weeks from now and it's very early. It affected 14 states. Although 80% of it was Texas, which is, on that side, is positive for the Insurance portfolio because it's on a region where we are very little present insurance-wise. So from the Insurance portfolio, I would say, very little to expect from there, if any. On the Reinsurance portfolio, of course, it's perceived to be a large event for the market. There are market loss figures that are estimated around there, I would be careful with those always. On our assessment on it, and again it's being very conservative, but we consider it to be within frequency of medium-sized events. We would consider probably an impact of the -- on the low or very low double-digit million amount for us. So nothing really that should change our guidance for the year. Expectations for year would be, for us, normal frequency of cat events. Considering that we don't have much exposure to Texas specific [ treaties ] and for -- and we have to wait what kind of impact will be on the larger nationwide companies in the U.S., which themselves carry very big retention. So we have to wait and see, but we don't expect it to be a very large event for us.

Yes. I mean the Massachusetts, sorry, I mean, the snowfall was not that big. And the net effect will be practically negligible, I mean, for MAPFRE U.S.A. as a whole.

Okay. Thank you. One question, I think, that they will go for José Luís Jiménez is related with the asset management. What are the further partnerships mentioned focused on? This is coming from Farquhar Murray from Autonomous.

Thanks, Felipe. On the asset management side, probably worthwhile to remember that we are switching, to some extent, from traditional life pros to mutual funds. And the business is growing well. I mean, in the last 3 years, asset under management has grown by 20%. We have different partnerships. We did in the past with La Financière Responsable in Paris in order to improve our ECG (sic) [ ESG ] skills and capabilities in order to be prepared for the new European regulation. It has performed extremely well. To be honest with you, probably this ECG (sic) [ ESG ] component has helped us a lot last year in order to improve in terms of equity performance. I mean, probably this is one of the reasons that we probably suffered less than other players and our mutual funds performing extremely well. Our best-performing fund, the Good Governance, focused on governance issues did last year 25% despite the EURO STOXX 50 did minus 6%. Also, in the U.S., we did [ state ] a partnership with Boyar Asset Management, a U.S. equity partner. It also performed extremely well. This year, it's plus 18%. So we're extremely happy with those kind of partnership. As I think Fernando has said, we increased as well our stake in Abante, probably the most important independent wealth manager in the Spanish market. The relationship is working extremely well. We are really happy. Business is growing. Fees are increasing. And we have a lot of projects on the desk to be developed this year and the next one. On the alternative space, I mean we also have arranged different partnerships, as I mentioned, with Macquarie, GLL, which is now part of the same group with Swiss Life. And now we are working on different products, more on the real estate, which probably is the most similar proxy to bonds. So we are expecting to get around 3%, 4% a year in the new funds as we have in the current ones. We are trying to set up as well a private debt fund and probably we have enough knowledge on this as a class, probably will be managed by ourselves, but also in cooperation with third-party partners. And also something, as I said before, that we are trying to foster is renewable energy. But we think also we have to contribute, we have to get performance, but at the time -- at the same time trying to do the right thing. So in most of these areas, we will try to increase our balance sheet diversification in a very prudent way. To give you an example, I mean, we prefer to get something between 4% and 6% with a 99% probability rather than to get 10%, 50% with a 95%. So we are extremely cautious. I mean we will use this partnership to try to get, I would say, interesting return, but without assuming important risks.

Thank you very much, José Luís. We have a question coming from Mario Ropero of Bestinver related to -- the first one is, please tell us what you expect in terms of premium growth for 2021 versus 2020 group Life and Non-Life. And the second one is related with the EUR 700 million, that will be $657 million for Filomena. Are there any other areas of extraordinary impacts that we should be aware of?

I'll start with this answer. We expect to grow worldwide 3% in insurance premiums. Think that the -- most of the growth is coming from Non-Life insurance because of 2 main reasons. We are more expert developing personalized, as we said, in motor, homeowners, SMEs. But also, this year, we have the exit of Bankia business in Life, so the growth is going to be more difficult, including also the low interest rate environment that doesn't allow to develop interesting products for customers. In terms of new impact to -- that can put in risk, the objective of EUR 700 million net this year, I can say that Filomena is not affecting. We have released this information after the Filomena storm. So we can consider that we are doing our best to reach this goal. And we don't oversee any other strong impact that can put risk in this objective. Fernando?

Yes. That's correct, Antonio. Filomena is a midsized cat event and you shouldn't deduct from the EUR 700 million guidance.

We have another question from Farquhar Murray at Autonomous related to Bankia. Just on the Bankia exit on Slide 50. Can you confirm that assumes a sale of 1x EOF?

Thank you, Farquhar. Unfortunately, I mean, it will be again a sensitive answer from my side. And in the current Bankia, MAPFRE context, I will stay -- I have to keep my lips sealed. Sorry about that. My apologies, but I can't say anything about this question.

Thank you, Fernando. That was could be expected. Paz Ojeda at Sabadell asks about the ROE and after-tax results targets, which excludes sales and write-down of nonstrategic assets. For 2021, you expect to continue with this program. But could you -- could be there more write-downs expenses this year? And what could you provide as an estimate?

Yes. Thank you, Paz, again. If you mean goodwill write-downs, the answer is no. Regarding any -- perhaps any other nonstrategic assets, I'm thinking of perhaps land for future developments and small items in our balance sheet, we'll see. But so far, I mean, we -- all the provision we needed at year-end we booked them. So let's say that, so far, there is no any evidence of additional write-downs nor provisions.

Thank you very much, Fernando. There's a question related to Insurance, so we'll go for Eduardo. Secondary perils such as severe convective storm, wildfire and winter storm have had a heightened loss impact over the last few years in the U.S. How are you thinking about this exposure going forward and navigating the group and nongroup portfolio?

Well, thank you. Well, of course, first of all, I have to say it's not a surprise that we have secondary perils that we are exposed to. It's -- we have been suffering claims from secondary perils forever and we have it into -- included it into our risk models, and we will continue to consider there. It's true that in the commercial models for cat models, they are not always well contemplated and that you have to add on top of the results of those models additional risk loads to cover for those events. Our view is that they are there for those that we consider that are difficult to cover because they are becoming difficult to -- because there are not any risk, there's a certainty, then we will have to limit those kind of risks. And so thinking there, for example, on California wildfires, we know that we will have them every year, so we have to be careful. And the most obvious thing that we have to do is it's reflected on pricing and not just look at the output of commercial models for our pricing purposes. We have tried to do it forever and we will continue to do that. We try to identify the risk and price for it. And if we think that we cannot take that risk because it's too big, we will try to exclude or not to write it. But that's business as usual for us and that's what we will be doing going forward. I don't think it will change our business model in any way.

Thank you very much, Eduardo. We have a question now from Marina Massuti from JB Capital Markets. The first one is related with a press rumor that you may consider disposing major stake in ABDA. Would you please comment on this? I think that the company is not commenting any kind of rumors. She has another question, this is related with how could we see which regions are more or less strategically important for MAPFRE?

Yes. It's -- obviously, Asia is not strategic, so we have a limited appetite in this region. As we said before, we have some regions where we would like to increase our presence, developing more organic growth. Spain, obviously. Germany is also a very competitive market, but we think that in a digital way, we can work more. And United States, where we are still reorganizing our business and we would like to increase our market share in the Northeast region, which is the most profitable region for us. Also, Brazil and Mexico. In Brazil, we are doing well, better than in the past. We invested a huge amount 3 years ago acquiring the P&C business of Banco do Brasil, but maintaining our alliance with the bank. So it's a very strategic market where we can reach more agreements with other financial retailers and distributors. And also Mexico is -- we think that our position -- our market position in Mexico should increase. So we are maintaining our current organic growth, very, very, very positive in the last few years, but also expecting future changes in the market to take opportunities.

Thank you very much. Marina Massuti from JB Capital Markets has another question related with the spinoff of Linea Directa. Do you think that could be a threat to competition in the auto business in Iberia?

Yes. Thank you, Marina. No idea of what will be the next future strategy one being public. But let me tell you that MAPFRE has been operating in this market from the last, I don't know, 80 years, probably even long before Linea Directa started. And also we love competition, so I mean, welcome. So there is nothing else to say.

Thank you very much. I think that we finished this Q&A question. Thank you. Thank you very much for your answers. Thank you very much for your questions. And now I will hand the floor to Antonio, who is going to give closing remarks. Thank you, Antonio.

Thank you, Felipe. Again, thank you, all. Summary, I would like to point out that 2020 was marked by the development of the pandemic with lockdowns and restriction to mobility throughout the world, which conditioned revenues from the reduction of economic activity and lower interest rates. The extraordinary cost reduction effort implemented throughout the year to reduce the impact of business, decline was highly [indiscernible]. All of this led us to present excellent results in practically all countries, highlighting once again Spain for its important contribution to the profits of the group as a whole besides Brazil and the United States, and superb results throughout Latin America and Europe. In addition, we have been able to comply very satisfactorily with the objective of paying a magnificent dividend -- magnificent dividends, sorry, to shareholders despite the market and supervisory circumstances while maintaining a high level of solvency with adequate control of liquidity in all of our operations. I believe that we have a healthier balance sheet and excellent solvency position, better performing technical foundations and operational transformation underway, all of which should enable us to grow steadily and profitably in the coming years. In addition, the initiatives in our strategic plan defined for the 2019 to 2021 have progressed well. We consider that with the 2021 objectives, we can just present it, we can reach all of our public ambitions with the exception of that related to revenues. And we have already started to draw up a new strategic approach for upcoming years, which will be released at the next AGM in 2022. Thank you for being here with us. Good morning. Thank you for your time today. Take care. Thank you very much.