Market Consistent Embedded Value 2016
Contents 1 MCEV analysis 2 Willis Towers Watson opinion letter 3 Methodological appendix 4 Statistical appendix 5 Glossary 2
1 MCEV analysis Reconciliation between EEV (1) y MCEV (1) 3,434.7 3,158.8 (124.1) Changes in the Cost of Capital: (14.3) (137.4) 1 • Rate of 6% before taxes • Limits of the contract 2 Solvency II discount curve Market Consistent methodology: Financial incomes adjusted to Market Value • 3 Matching Adjustment • • Market Consistent Surrender value EEV 2015 CoC Solvency II Market Consistent MCEV 2015 risk free rates Approach Million Euros 3 (1) Without adjustments for minority interests.
1 MCEV analysis Development of the MCEV in 2016 2016 r % Value of In-force Business (VIF) (1) 2,552.1 65.0% Market Consistent Embedded Value (MCEV) (1) 4,548.5 44.0% Attributable to the Parent Company 3,664.5 53.7% 884.0 14.1% Attributable to Minority Interests Return on Embedded Value (RoEV) 10.4% 2.6 p.p. Present Value of New Business Income (PVNBI) (1) 4,927.2 30.7% Value added by new business (1) 155.5 9.3% New business margin 3.2% -0.6 p.p. Key highlights Application of the MCEV methodology aligned with Solvency II. Elimination of Life business of UNION DUERO VIDA and PENSIONES. Inclusion of Burial business of MAPFRE ESPAÑA, Life business of BANKINTER VIDA in Portugal, and Life business of MIDDLESEA VALLETA in Malta. Million Euros 4 1) No adjustments made for the share of minority interests
1 MCEV analysis MCEV components and their variation in 2016 MCEV 2015 MCEV 2016 5.500 3,089.3 5.000 4,548.5 4.500 (444.1) (93.1) 4.000 2,162.5 3,434.7 3.500 (273.7) (66.2) 3,158.8 3.000 (275.9) 2.500 416.1 2.000 1,580.3 376.9 1.500 1,235.1 1.000 500 0 ANAV Parent ANAV PVFP CoC TVFOG 2015 EEV MCEV MCEV 2015 ANAV Parent ANAV PVFP CoC TVFOG 2016 MCEV 2015 Minority adjustments 2016 Minority Interests Interests Million Euros 5
1 MCEV analysis Breakdown of the 2016 MCEV By business line By distribution channel € mill. % r % Adjusted Net Asset Value 1,996.4 43.9% 23.8% € mill. % r % Net PVFP (1) - Life Assurance (2) 1,397.6 30.7% 6.6% Adjusted Net Asset Value 1,996.4 43.9% 23.8% - PVFP 1,803.5 6.7% Net PVFP - Agent channel 1,694.5 37.3% 112.6% - CoC (406.0) 7.1% - PVFP 1,930.0 92.4% Net PVFP (1) - Burial Insurance 887.4 19.5% - CoC (235.4) 14.3% - PVFP 916.2 Net PVFP - Bancassurance channel 950.6 20.9% 16.5% - CoC (28.8) Net PVFP (1) - Mutual Funds 195.3 4.3% 27.3% - PVFP 1,159.3 15.0% - PVFP 197.6 27.3% - CoC (208.7) 8.7% - CoC (2.3) 29.4% TVFOG (93.1) -2.0% 40.7% Net PVFP (1) - Pension Funds 164.9 3.6% 11.1% MCEV 2016 4,548.5 100.0% 44.0% - PVFP 171.9 3.9% Initial capital used to calculate the CoC (3) - CoC (7.1) -58.4% 1,253.6 53.3% TVFOG (93.1) -2.0% 40.7% MCEV 2016 4,548.5 100.0% 44.0% By undertaking Spain - Spain - Portugal - Malta - Total Life Burial Life Life Adjusted Net Asset Value 1,698.5 178.3 21.1 98.5 1,996.4 Net PVFP (1) 1,689.3 887.4 2.6 65.9 2,645.2 TVFOG (88.0) 0.0 (1.3) (3.8) (93.1) MCEV 2016 3,299.9 1,065.7 22.4 160.6 4,548.5 % on Total MCEV 72.5% 23.4% 0.5% 3.5% 100.0% Million Euros 6 (1) Net PVFP = PVFP - CoC (2) Includes the in-force values of the Life assurance and Accidental Death insurance businesses. (3) CoC calculations based on an amount of capital equal to 100% of the solvency capital requirement, applying the new rules of Solvency II.
1 MCEV analysis Share of the parent company in the 2016 VIF 2,645.2 2,552.1 (93.1) 2,084.2 (467.9) Net PVFP TVFOG VIF Minority VIF pre-TVFOG interests VIF attributable to MAPFRE GROUP Million Euros 7
1 MCEV analysis Value added in 2016 Change in Embedded Value 1,214.7 4,548.5 (174.6) 142.9 124.5 51.3 32.1 (20.1) 19.1 330.6 3,158.8 (1) RoEV = 10.4% MCEV 2015 Changes in Changes in Expected Value added Deviation Change in Value added Additions (2) Dividends MCEV 2016 model assumptions return by new of actual TVFOG in 2016 paid and business value from other items expectations Million Euros 8 (1) Return on Embedded Value = value added in the year / Embedded Value 2015, adjusted for changes in model (2) Elimination of Life business of UNION DUERO VIDA y PENSIONES. Inclusion of Burial business of MAPFRE ESPAÑA, Life business of BANKINTER VIDA in Portugal, and Life business of MIDDLESEA VALLETA in Malta.
1 MCEV analysis Analysis of the main variations in MCEV Change Description Changes in Improvements in Cost of Capital valuation models. model Reflects the unfavorable development of the loss experience (- € 11.7 million), favorable developments in lapses (+ € 29.7 million) and expenses (+ € 56.5 million). Changes in Shift in the interest rate curve, change in pension plans and investment fund assumptions performance, and change in default risk. Includes the impact of the unwinding of the discount rate (+ € 47.8 million), and Expected return the expected after-tax investment return on the adjusted net asset value at the beginning of the year , net of the cost of capital (+ € 3.5 million). 9
1 MCEV analysis Analysis of the main variations in MCEV (contd.) Change Description Deviation of actual value Reflects primarily the impact on the net asset value of the valuation adjustments from of financial investments. expectations The increase in costs of the TVFOG is due to the downturn in the yield curve in TVFOG 2016, and to the change to a Market Consistent methodology . Elimination of Life business of UNION DUERO VIDA y PENSIONES (1) (- € 120.9 Inclusions and million). Inclusion of Burial business of MAPFRE ESPAÑA (+ € 1,065.7 million), Life exclusions business of BANKINTER VIDA in Portugal (+ € 109.3 million), and Life business of MIDDLESEA VALLETA in Malta (+ € 160.6 million). 10 (1) Union Duero Vida's exit option has been exercised. The compensation that MAPFRE VIDA will receive for this exit is still being negotiated at the date of publication of this report.
1 MCEV analysis Value added by new business (VNB) (1) Development of the value added Key highlights Excludes new production from UNION 1 DUERO VIDA and PENSIONES in 2016, 3.8% which was included in 2015. 3.2% Increase in acquisition costs other 2 than commissions in the agent channel. 155.5 142.2 Inclusion of BANKINTER LIFE business in Portugal, the Burial business in 3 MAPFRE ESPAÑA, and the Life MIDDLESEA VALLETA business in Malta. 2015 2016 Effect of the change to Market Value added by new business ( € million) 4 Consistent methodology. Margin over PVNBI (%) 11 (1) VNB 2015 is calculated under EEV Principles. It has not been reconciled to MCEV Principles.
1 MCEV analysis Sensitivity analysis of the Market Consistent Embedded Value (MCEV) (1) Sensitivity Variation in MCEV Resulting value 100bp increase in interest -290.9 3,959.8 rates 10% decrease in the value -66.7 4,183.9 of stocks and real estate MCEV 2016 € 4,548.5 M 10% decrease in expenses 134.0 4,384.6 Base scenario (2) € 4,250.6 M 10% decrease in the 4,463.6 213.0 lapse rate 5% decrease in mortality and 73.1 4,323.7 morbidity 242.6 4,493.3 100bp decrease in interest rates Million Euros 12 (1) MCEV = ANAV + VIF (2) The base scenario for the sensitivity analysis has not taken into account the ANAV of MIDDLESEA VALLETA, MAPFRE PORTUGAL and Burial business of MAPFRE ESPAÑA; 93.5% of the MCEV is accounted for in the sensitivities. Next year the ANAV of all the entities that form part of the covered business will be included in this analysis.
1 MCEV analysis Sensitivity analysis of the value added by new business (VNB) Variation in VNB Sensitivity Resulting value 100bp increase in interest -11.1 144.4 rates 10% decrease in the value -0.4 155.1 of stocks and real estate 7.6 163.0 10% decrease in expenses Base scenario € 155.5 M 10% decrease in the 181.3 25.8 lapse rate 5% decrease in mortality and 2.2 157.7 morbidity 6.0 100bp decrease in interest 161.5 rates Million Euros 13
Contents 1 EEV analysis 2 Willis Towers Watson opinion letter 3 Methodological appendix 4 Statistical appendix 5 Glossary 14
2 Willis Towers Watson opinion letter 15
2 Willis Towers Watson opinion letter 16
Contents 1 EEV analysis 2 Willis Towers Watson opinion letter 3 Methodological appendix 4 Statistical appendix 5 Glossary 17
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