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CaixaBank pays Mapfre 571 million for breaking the insurance agreement

Mapfre headquarters in Majadahonda (Madrid), in a file image. GettyImages

CaixaBank has paid Mapfre 570.8 million euros for the termination of the insurance agreement that Bankia (now part of CaixaBank) had signed with the insurer, as reported by both companies to the National Securities Market Commission (CNMV ). The solution reached involves satisfying 323.7 million for the purchase of Mapfre's 51% of Bankia Vida and paying compensation of 247.1 million for terminating the agreement to sell insurance at Bankia's offices. The total sum may be increased by 52 million depending on what is determined by an arbitration to which both companies have agreed to submit. In addition, the insurer indicates that it is dissatisfied with the assessment of Bankia Vida made by an independent expert and says that it will take legal action.

The announcement of this Wednesday is a blow to the merger process between CaixaBank and Bankia, whose integration culminated in the first quarter of this year. When Bankia was an independent entity, it had an agreement for the commercialization of non-life insurance with Mapfre, which also had a majority stake (51%) in a joint company, Bankia Vida, with which the entity provided this insurance service. But this model did not fit after the absorption by CaixaBank, which had the business ordered in a different way.

The solution, therefore, the relationship between the bank and Mapfre has been terminated. Once 100% of Bankia Vida has been assumed, it will be sold in its entirety to VidaCaixa. The entity of Catalan origin indicates in the statement sent to the stock market regulator that “the formalization of these operations will not have a significant impact on the income statement” of the group for 2021. At the time, CaixaBank made extensive provisions for contingencies that could arise in the merger process and this was one of the foreseeable, market sources indicate. In any case, the purchase of Bankia Vida “will have an impact on CET1 capital” which the bank quantifies in the loss of seven basis points in that solvency indicator.

For its part, Mapfre announces that the agreement has generated a net profit of 171 million, to which another 52 million could be added if the arbitration award is resolved in a manner favorable to its interests. The insurer claims that part of the money will be used to improve its operating efficiency. The idea is to go to a simpler model with which he hopes to obtain annual savings of 46 million euros. However, he is not satisfied with the amount received.

Legal actions

The reason for this dissatisfaction is the valuation of Bankia Vida made by an independent expert, the firm Oliver Wyman. Mapfre considers that the market value is around 715 million, instead of the less than 600 million that were determined, and therefore announces that “it will exercise the pertinent legal actions.” These, in principle, would be directed against the appraisal firm, “for breach of the instructions contained in the order” to determine the value of Bankia's life insurance business. Insurer sources indicate that the valuation was made with “unusual” criteria because they did not contemplate the future benefits that current policies could generate and they consider that it should have done so.

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Added to that is the arbitration to which both companies have agreed to submit, since Mapfre not only disagrees with the valuation, but also with the way to determine the compensation that was due to him. This has been calculated as 110% of the market value of the affected business, but the insurer believes it should be 120%. So it will be an arbitration award that indicates whether or not CaixaBank should also pay those 10 points of difference, equivalent to 52 million euros.

In the agreement signed by Mapfre and Bankia in its day included some assumptions that gave the right to receive compensation for the termination of the business of 120%. One of them was the change of control in the entity that had been rescued by the public sector in the Great Depression. CaixaBank, however, argued in the negotiation that the assumption to apply was the one that determined a compensation of 110% if there was an increase in Mapfre's insurance marketing network through bank branches.

The announcement of the agreement between CaixaBank and Mapfre, both listed on the Ibex 35, occurred in the middle of a trading day at the end of which the The bank has posted earnings of 0.21%, reaching 2.40 euros per share. The insurer's price has closed practically flat, with a slight loss of 0.08% and 1.82 euros per share.

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