Good afternoon, everyone, and welcome to Mapfre's results presentation for the first nine months of 2021. This is Felipe Navarro, head of investor relations and capital markets, as well as corporate treasurer. Fernando Mata, our CFO, will walk us through the main figures and highlights of the quarter.
As a reminder, additional information can be found on our website, including the MD&A as well as the usual spreadsheets. At the end of the presentation, we will open up the Q&A session. You can submit your questions using the Ask a Question link on the bottom of your screen. We will try to answer all questions as time allows. The IR team will be available to answer any pending questions after the call. Before we start the presentation, I would like to give an overview on how the pandemic is developing in our main markets.
As you're aware, infection and mortality numbers are coming down at global level. This allowed us to feel more optimistic about the outlook of the pandemic, with more countries close to reaching some form of normality as vaccination rates should continue to increase, but at a slower rate.
At the end of September, around 96% of employees in Spain were working from premises, 78% in the U.S., and 89% in Brazil. We will continue adapting the changes in conditions in every country. Now, let me turn the call over to our CFO, Fernando. The floor is yours.
Thank you, Felipe, and thank you everyone for being here with us. Before I go into the details, let me start by saying that we are very satisfied with our third quarter results. Performance at the insurance units was in line with expectations, showing that we are on track to meet the guidance announced at our AGM.
Top line performance was excellent and is worth highlighting strong local currency growth in Spain, Brazil and also Mexico. The normalization of economic activity and lifting of restrictions should continue to support premium trends. There were three main elements impacting third quarter results.
One, regarding COVID claims. There has been a normalization in mature markets and reinsurance business. Life protection and health claims in Latin America continue at high levels, but improving compared to previous quarters. We expect these improvements to feed into results in the coming quarters.
Two, in general, the normalization of economy, economic activity has led to an overreaction in mobility, causing the motor combined ratio to increase. On the other hand, we are also seeing positive trends in other lines, like homeowners and health. In the end, we should expect these ratios to normalize in the coming quarters.
Last, in terms of nat cat losses, it has been an active quarter, with the Storm Bernd in Germany and Central Europe being the most relevant event. In order to offset these cat losses, we opportunistically took advantage of market conditions, realizing a significant amount of capital gains, fundamentally in equity. In Iberia, we continue to outperform the market in premiums in key non-life segments with good, very good growth in life, while maintaining strong underlying technical margins.
Reinsurance and global risks are also consolidating positive trends on the back of tariff increases. Despite the active nat cat quarter, the combined ratio is still down over four points year-on-year. In the United States, results are resilient thanks to the streamlining process over the last few years, and the Northeast continues to be the largest contributor to profits.
Brazil is also well-positioned to improve metrics as the economy recovers. Finally, I would like to highlight our strong capital position with the Solvency II ratio of 195% at the end of June, which is in line with our risk appetite.
Dividend upstreaming continues to be strong as subsidiaries, and the board has approved an increase of EUR 0.01 to reach a EUR 0.06 interim dividend to be paid on November 30th, one month earlier than usual, in line with the group's commitment to returning to a sustainable dividend.
Now I will comment on some of the main figures. We are on track to meet our guidance. Premiums are up 7% in euros. At constant exchange rates, growth was over 10% with strong trends in both life and non-life. Currency movements reduced growth by approximately 3 percentage points, but have been less of a drag than the previous quarter. On the other hand, the renewal of a multi-year policy in Mexico added approximately 3% of growth.
The group combined ratio was 96.5%, slightly above guidance, and 95.7% at the insurance units, mainly due to the high nat cat activity during this quarter. Also, I have to remind you the provision for early retirement booked in the second quarter. Excluding this provision, the combined ratio would be 95.8% for the group, 94.8% at insurance unit, and the expense ratio would be 28% with a nearly one percentage point reduction.
As a conclusion, we are on track to meet the 95% guidance, assuming normal cat activity in the fourth quarter. Mapfre's net result is EUR 524 million, up over 16%, in line with the EUR 700 million guidance for year-end. The ROE excluding goodwill write-downs is 8.6%, slightly above the guidance of 8.5%.
Finally, shareholders equity is slightly down on the year, mainly due to the reduction of unrealized capital gains on the available-for-sale portfolio. On this slide, I will take you through the breakdown of the adjusted attributable result. Regarding net CAT claims, it was an active quarter. We had smaller impacts from Storm Bernd and Hurricane Ida, but we have considered this claims business as usual.
On the other hand, Storm Bernd in Central Europe in July, which was initially considered as a mid-sized event, has become one of the largest CAT events in Europe, with a EUR 92 million impact for Mapfre. We have reached the priority limit, EUR 125 million, so we will not be affected by any potential negative loss development from this claim.
Furthermore, a second layer of CAT coverage, what we call the frequency cover, has also been triggered. Therefore, potential impact from any single relevant event would have a quite limited impact on P&L. In previous quarters, we didn't consider the different COVID impacts at insurance operations as extraordinary due to their offsetting nature.
This year, most of the COVID impacts in non-life lines remain neutral, but COVID-related life protection claims are being considered as a large loss, particularly in Latin America, so we are disclosing the effect for both years. The impact of COVID claims, including insurance and reinsurance, reached EUR 107 million as of September, EUR 23 million higher than last year, but lower in the quarter. Our investment portfolio was well- positioned to take advantage of the favorable financial markets to offset these losses.
As a result, realized gains are up over EUR 76 million. The line other has contributed positively, mainly due to asset sales and the release of an earn-out provision in Spain, which were communicated in the second quarter. You can see the details on the slide. In 2020, other items included a provision for a restructuring. Excluding these impacts, the adjusted net result was EUR 623 million, slightly higher than last year.
Regarding the third quarter, the EUR 210 million adjusted result is down compared to the second quarter due to the uptick in motor frequency. Finally, I would like to mention that this quarter reflects a EUR 20 million contribution from Bankia's second and third quarter results, stemming from the change in accounting treatment following conversations with regulators.
The change is a consequence of the length of the process and the majority voting rights still held by Mapfre. On this slide, we show the main trends this quarter. I would like to highlight the positive performance in Iberia. Premiums are up over 7%, and we are outperforming the market in both life and key non-life segments, recovering the leading position.
We are growing 1% in motor, while the market is down by a similar amount, and the number of units continues strong, up 3.6%. Growth is also robust in other segments. Health is growing nearly 10%, condominiums is up 6%, and commercial lines nearly 10%. The combined ratio remains strong at 96% despite an uptick in mobility and motor frequency during the quarter.
In Brazil, currency headwinds are still relevant, but improving significantly, with average real exchange rates down 8%. Premiums are up over 16% in local currency with healthy growth trends in agro, motor, and life protection. The EUR 31 million decrease in the attributable result is mainly due to still high COVID-related life protection claims.
The combined ratio remains strong at 87%, slightly higher than last year, driven by the uptick in motor frequency. The economic outlook continues to improve with growth in consumption and exports, and selling rates up. The currency is improving, but with high volatility while we're keeping an eye on inflation trends. Premiums in LATAM South grew around 7% in euros, and premiums in LATAM North are up over 44%, 5% excluding the large multi-year policy in Mexico.
Local currency growth was solid in most segments, and it is worth mentioning Colombia up 30%, Peru up over 15%, and Panama up 8%. Combined ratios in both regions remain at good levels, with some deterioration in LATAM North due to COVID-related claims affecting health, as well as the uptick in motor frequency.
Performance in North America has been affected by currency depreciation, with average dollar exchange rates down around 5%. The combined ratio is in line with the previous year, and investment results have been strong. In the U.S., we should expect new business to catch up as the economy continues to recover. In Eurasia, premiums are down due to the non-renewal of the dealership channel in Italy, as well as some depreciation of the Turkish lira.
All countries have contributed positively to results, except Italy, which was affected by hailstorms during the quarter, and also high expenses that still need to be adapted, as we mentioned in previous results presentation, to the new business model. At Mapfre RE, premiums are also up, supported by positive pricing trends.
The combined ratio is down over 4 percentage points year-on-year at 98.5, despite the high net cat activity. The net result is up significantly, and the unit has shown a high level of financial flexibility, realizing investment gains to offset this impact. Furthermore, the turnaround in global risks is evident, with results up over EUR 20 million year-on-year. In the assistance business, volumes are down 18% as we continue with our streamlining process.
Regarding results, we're very close to breakeven, reporting a slight profit during the last two quarters. As a reminder, last year was strongly affected by travel cancellation claims, and this quarter there was a positive EUR 5 million impact from the closing of InsureandGo in the U.K.
On this slide, I would like to comment on the life business at the insurance units. In Iberia, premium performance has been outstanding thanks to the rollover of product maturities, with a focus on unit-linked and also several large single premiums, policies that they were issued during the quarter.
In Brazil, premiums were affected by currency depreciation, while local currency growth was healthy, with improving trends throughout the year in both channels. The life attributable result is down mainly due to strong impact from COVID claims in LATAM.
Mortality in Brazil has declined continuously since June and is now at the lowest level since November 2020. Situation in Mexico, Colombia, and Peru is also improving. Just as a reminder, the result in Iberia is up significantly due to the already mentioned release of an earn-out provision.
On the right, you can see the quarterly evolution of the impact of COVID-related life protection claims in the region. There was a total impact of EUR 92 million, of which EUR 43 million were in Brazil. Mexico, Colombia, and Peru were also strongly affected.
The third quarter impact was lower than the previous quarter, and with September data, it seems that we have passed the peak. Average cases and death figures are beginning to come down, which makes us more optimistic about the outlook for the coming quarters.
Now I will move on to the balance sheet and capital. This slide includes a full disclosure of the breakdown and variation of the investment portfolio and total assets under management. Spanish sovereign debt continues to be our largest exposure, now EUR 12.4 billion, and Italian debt with EUR 2.8 billion is the second largest.
Both securities are mainly allocated to immunize the portfolios. The investment portfolio is slightly up, mainly due to the rally in equity markets, which helped mitigate the fall in fixed income investments due to higher yields, with the Spanish sovereign up over 40 basis points year- to- date.
Pension and mutual funds have had strong performance, growing 7% and 14% respectively, both due to market movements as well as positive net contribution of EUR 104 million in pension funds and EUR 290 million in mutual funds at the end of September. On the top left are the details of our euro area actively managed fixed income portfolios.
The market value of these portfolios is around EUR 12.6 billion. The non-life portfolio has an accounting yield of around 1.5%, down only 15 basis points year- to- date. The life portfolio has a yield of a little under 3.5%, down 20 basis points. The fall in yields is consistent with the reduction in duration in both portfolios.
Duration in non-life is now at 7.8, around 4.5 years, excluding the variance segment, which, as you know, is a long tail business. While in the life portfolio, duration is 6.8. On the bottom left, you can see the details of the fixed income portfolios in other markets, which, portfolio yields up around 50 basis points in Brazil, now at 6.6%, and relative stability in North America.
Realized gains and losses in actively managed portfolios in the euro area were around EUR 96 million, significantly up year-on-year and on the quarter as well, as we took advantage of favorable equity markets to realize gains to compensate net capital losses. At the end of September, there were still EUR 85 million of unrealized gains in equity and investment funds in our actively managed portfolio in Iberia and Mapfre RE.
Shareholders' equity stood at a little under EUR 8.5 billion, slightly down on the quarter. Currency conversion differences were relatively stable during the quarter, but up EUR 113 million on the year, stemming from a notable appreciation of the US dollar together with stability in the Brazilian real. Net unrealized gains on the available-for-sale portfolio were down EUR 397 million on the year due to rising yields.
The breakdown by region, which is new information we're disclosing, is as follows: LATAM with a fall of EUR 151 million, Iberia with EUR 136 million, Mapfre with EUR 57 million, and North America with EUR 50 million. As you can see, Iberia's impact has been limited due to the high degree of immunization of life portfolios as well as profit sharing.
There was also a EUR 92 million negative adjustment against reserves due to the acquisition of minorities in Mapfre Perú Vida in the third quarter, which is reflected in the line Other. The breakdown of currency conversion differences and currency movements are shown in the table on the right, along with the standard sensitivity analysis.
On the chart on the left, you can see the breakdown of the capital structure, which amounted to EUR 13 billion, of which over three-quarters is equity. Leverage is slightly up on the quarter, around 24%. The slight increase is mainly due to seasonality. The absence of dividends and cash for the fourth quarter should lower leverage and financial needs by year-end.
On the right, you can see the Solvency II figures for June 2021, which were released last month. The ratio sits at 195%, comfortably near the midpoint of our range. The main moves on the quarter were related to the investment portfolio, including the rating downgrade of Colombia, as well as the symmetric adjustment which increased the capital charge for equity. Before moving on to the Q&A session, I would like to make a few closing remarks. First of all, we're very satisfied with the results in Iberia, our largest operation.
We have recovered our position as market leader with strong premium performance, and we are well- positioned for profitable growth. We're moving ahead with our transformation and digitalization plans to have leaner and more efficient operations. Profitability is robust in the United States, especially in the Northeast, and we are benefiting from a successful restructuring process. The new agreement with the AAA Club will strengthen our position in this distribution channel.
In Latin America, we successfully adapted our business model to the new environment. The pandemic and economic situation remains challenging, but with a significantly improved outlook. This was a tough quarter for the reinsurance industry, no doubt, from a nat cat perspective. Mapfre still reported resilient results, underpinned by its investment approach and a strong contribution from global risks.
As for Bankia, the exit process is moving forward, and the approval from the competition authority was already granted. Furthermore, we are expecting to receive the independent appraisal value by November, so if everything goes well as planned, the transaction should close by year-end. As usual, we will keep you updated with any further developments.
In conclusion, it has been another positive quarter, showing growth in premiums and results in a more positive scenario, but not without uncertainties coming from the economic environment.
Volatility in combined ratios will remain in the short term across different segments and geographies as activity continues to normalize, with an expected neutral impact on the underwriting results. In the medium and long term, future tariffs will be adapted to reflect changes in underwriting trends and risks, profiles.
We are on the right path to meet our 2021 commitments, and so far, we haven't seen any evidence that jeopardizes this guidance. The interim dividend of EUR 0.06 is proof that we're committed to return to a sustainable dividend path. Thank you again. I will now hand the call over to Felipe to begin the Q&A.
Thank you. Thank you very much, Fernando, for this very complete and deep explanation of the results. We move now to the Q&A. First one is from Maksym Mishyn from JB Capital. Do you see risks on the non-life claims if inflation persists and logistics costs remain high, which segments could be the most impacted?
Well, we had to analyze, I mean, this inflationary risk for both line of business. Regarding auto, as we already mentioned, we're very well protected. We got a wonderful garage network, preferred garage network with significant reduction in cost when we compare to standard garages.
Also we have a bargaining agreement, which is fixed for this year. There is no adaptation to inflation rate year end. Also we have directed most of the claims to these preferred garages. According to the data from the last month, I guess they're like 90%, correct me if I'm wrong. Over 90% of the car crashes are directed to preferred garage network.
From this side, I don't see any inflationary risks affecting motor line. Others, such as health and we mentioned at the end, at the June presentation, we really noticed a significant increase in hospital bills. I mean, the rate increased due to the COVID scenario. Also the average cost from medical services increased as well due to the additional tests carried out in this COVID environment. Fortunately, this trend has changed and average costs start coming to normality.
Even though, I mean, we should expect a significant increase in health for renewals as you probably read in the paper, in the Spanish paper, affecting civil servants and also which is by far the largest policy in Spain, but also affecting too normal personal policies. The remaining, and particularly commercial lines, I don't see any inflationary risk on that.
Just as a conclusion, if you'll look back for the last 10 years, I mean, motor line has been extremely competitive and also there is a lot of transparency basically derived from price comparison sites. For the last 10 years, most of the efficiencies in cost were automatically transferred to prices.
There has been in relative terms a reduction in the average premium for auto for the last 10 years. We should see a similar trend. Let's say that, as a general rule, I mean, we expect the sector, assuming part of the inflation cost and transferring only a small part of inflation to rates.
Okay. Thank you. Thank you very much. We have another question coming from the same person, from JB Capital. No, sorry. From Ivan Bokhmat from Barclays. We have seen a deterioration in the combined ratio in Iberia in the third quarter 2021. Same trend as some of your peers have experienced already. How much of that comes from the accident frequency normalizing? Can you update us on claims inflation and pricing in motor and other PC lines?
Yeah. I'm gonna take the first and last one. I mean, regarding trends in pricing and also talking on motor line business. As you remember, I mean, last year, we implemented a sort of a individual discount policy for good policy holders in order to retain and reduce any potential churn among, I mean, the COVID scenario. These discounts came to an end at the end of 2020. Obviously, I mean, this reduction in premiums is also being carried over for new premiums in 2021, also affecting the combined ratio.
Let's say that as a general rule, I mean, rates has come to normality and we should this reduction in net premiums to phase out for the coming months. Regarding loss ratio, I know that some of the peers they already made comments on that topic. We are a little bit different. Regarding average cost, we haven't seen any change in previous metrics. Practically, I mean, we're close to zero in terms of variation. Regarding frequency, you're right. I mean, it's quite similar to the increase in mobility. I would like to give an additional comment on this.
Most of the increase in the frequency of the reported claims are on small crashes, small scratches, and affecting physical damage for the full cover policies. But we understand that they're being filed with the company due to some reduction on c overage
It's a trend that we've seen in the past as well in time of restriction or economic unrest. We see some change from full cover to full cover with deductions on. Sorry, with deductibles. Also from full cover to basic policies on the TPL. Let's say that it seems to me to be a sort of catch-up effect. As some of these claims are coming from previous months. The clients before switching from coverage or from other carriers or to other carriers, what they want is just to leave the car in perfect conditions before reducing coverage in their policies.
My conclusion is that some of or part of this increase in frequency is temporary, and it should phase out in the coming quarter. Obviously, there is an increase in frequency as we've seen in other peers.
Okay. Thank you very much, Fernando. Now for Max from JB Capital. Do you continue to see pressure in premiums in motor insurance in Spain? Are they easing?
Well, more than pressure on premiums, which has existed since ever, I mean, in Spanish motor market. What we're seeing is a reduction in coverage, and also switching to other carriers. Which is normal in economic scenarios like the one we're living. I guess it's also related to the age of the Spanish fleet.
It's almost 13 years old, if I remember well. It's basically due to the reduction in new car sales. I mean, it's extremely difficult to sell policies for cars older than seven years. Our policyholders either remaining within Mapfre, and they change it to lower and simpler policies in order to reduce the bill. This is the basic, let's say, new trend that we'll see in this quarter, and probably remain for the fourth quarter as well and some months.
Okay. Basically, there's not such a war or softening in the market that we can translate into lower pricing.
I don't see an upside currently. A lot of pressure on, I will say, coverages. I mean, switching from full cover to simpler policies.
Okay. There is a question from Marta Oria from Bestinver, and he's asking about what can we expect from the La Palma eruption, this volcano that erupted in the Canary Islands, and which is mainly covered by the Consorcio. I mean, so it's all covered by the Consorcio. Any other consequence for the-
No, not really. I mean, it's part of the social aid we granted to some of our policyholders with properties insured in Mapfre. We granted a EUR 9,000 indemnity for those that they lose their properties. Mapfre has a quite significant market share in the Canary Islands. As has happened in other cat events, Mapfre will be close to their policyholders in order to provide the help they need.
Okay. Thank you very much, Fernando. Farquhar Murray from Autonomous has a question on COVID. In broad terms, what is the net balance of COVID impacts in the primary insurance business between positives from frequency versus negatives from mortality? He says that he thinks that previously the suggestion has been that around the balance, they were around almost balanced. Now he feels that these are presumably a net negative for the nine months 2021. You know, we can have some kind of color on this effect.
Yeah. Thank you, Farquhar Murray. This is a quite interesting question. As we mentioned in previous presentation, I mean, it's extremely difficult to isolate or differentiate those improvements in combined ratio due to efficiencies or better underwriting policies implemented in the auto lines and differentiate from the lockdown or the confinement or the lack of mobility.
As we mentioned in previous presentation, we understand that the both negative and positive effects from the pandemic were neutral in 2020, and also during the first half of 2021 was sort of neutral.
I wouldn't say that in the third quarter as we presented the numbers, and we expected an uptick in life protection, particularly in LATAM because of the lack of the slow pace of vaccination and the lack of vaccines. The third quarter was a surprise. Let's say that the third quarter wasn't asymmetric effects. I will say that it's a little bit negative from life protection.
We could define the third quarter as a transitional quarter between-
Yeah, I guess that the-
mortality and-
I mean, it's quite different from different geographies because in LATAM South, there are still some countries you just see the financial report with combined ratios below 90, which is amazing, I mean, in these conditions, even recovering mobility. Other countries such as Brazil and Spain, combined ratio automobile is around 100.
So there is a lot of moving parts affecting different geographies and different lines as well. This is a transitional quarter, as Felipe said, and we've seen recovery in mobility, reduction in other lines as well, and increases in, particularly in life protection. As I mentioned in the wrap-up, I mean, we should expect those lines and those combined ratios to converge into standards in the coming month.
Okay.
In the coming quarter, sorry.
Thank you very much, Fernando. Next question is related with the dividend. I mean, it's Ivan Bokhmat from Barclays. He's asking, can you remind us intention regarding the dividend? Is it to return to 2019 level with EUR 0.14 per share?
Well, Ivan, this is at this moment a difficult question, and it can't be answered. I mean, we return to the same interim dividend, EUR 0.06, is the first step to return to sustainable dividend path. Once we finish this year and if we meet the guidance, I think we will be a big push and probably another step. I mean, to return to this dividend path.
The final amount, we have to wait just the Board at the beginning of next year just to know the final decisions. But we're pretty committed with investors, and we will come back to this sustainable path as soon as possible. That's what we mentioned, and we stick to this policy.
Okay, thank you. Thank you very much, Fernando. Max from JB Capital, could you update us on how you plan to replace the business volumes lost due to the end of Bankia Mapfre JV?
Well, organic growth, a big push from Santander. Any potential market opportunity we can get. I mean, Mapfre is growing very, very well. You know, 7% in Spain. I think with this growth, we offset any lack of a new business from Bankia. We're not worried, I mean, with the situation. We know it was a very important channel. What Mapfre has shown with this extraordinary performance in premiums growth is that we are able, I mean, to offset any potential lack of or any distribution channel that could lower, I mean, their expectations.
Good. I mean, it's very important to speak about the extremely resilience of the organic business now of Iberia that is ready to offset any other big effect like the one of losing the Bankia's network.
Absolutely. If you can have a look, I mean, to the financial report of the life MAPRE vida, you see the extraordinary premium growth on the Mapfre's network compared to the Bankia insurance distribution channel. This is a very important distribution channel that we have to optimize in this situation and also putting value in value, I mean, which is very important.
Thank you very much, Fernando. We have another question for you related with reinsurance activities coming from Philip Ross from Mediobanca. Can you recap on reinsurance, please? You mentioned the EUR 125 million limit with a reference to the EUR 90 million, EUR 92 million Storm Bernd loss. Secondly, have you recognized some benefit on the third quarter from frequency cover? Do you anticipate an impact on your insurance retro buying next year? It's quite a complex question.
Yeah. Yeah, you're right. I mean, we hit the priority limit, which is EUR 125 with Storm Bernd. We booked a recovery from reinsurers for this particular event. Regarding the impact in our next year cost of protection, probably we can see an increase. In any case, I mean, if we get an increase for our retro ceded business, I mean, we will pass it to the ceded entities as well, so.
It's normal with the hardening of the reinsurance market that we will be able to pass this kind of-
In the end, it will be neutral.
One comment on the EUR 125 and EUR 92 is the net retention of the same thing.
That, that's correct.
Okay.
EUR 92 million net effect is without taxes and minorities. In the end, it's the net effect of the gross EUR 125 million .
Okay. Another one coming from JB Capital. Max is asking on how should we see premiums of Mapfre RE evolving in 2022 after. I mean, I say that after this excellent-
Yeah
... increasing during 2021.
At this moment, I mean, we are in an earlier stage in order to give you more color regarding 2022. We should expect, let's say, a moderate increase. Renewals for mid-year, they were pretty good in terms of rates. We should expect a similar scenario, I mean, for next year.
Okay. Ivan Bokhmat from Barclays is asking another question related with Bankia. Was the EUR 24.4 million one-off from the inclusion of Bankia second quarter and third quarter result in the third quarter included in the life business result during these quarters? Okay, I'm trying to explain this.
The way we- as Fernando Mata said, we made an adjustment on the third quarter on the result of Bankia because of a change in the accounting way that we were recognizing this result. There's a full disclosure of the figures in the financial report. That's, I think, in Page 22. That says that the EUR 20.4 million figure is after tax and minorities considering our 51% stake.
You need to gross it up and to add the minorities in order to make the total figures. Throughout the entire year, the result of the life business included 100% of the result of these entities. If you look at the total profit and loss account on the balance sheet, you will see 100% of this entity before tax, taxes and minorities. It was only on the last line that you will see the adjustment.
Yeah, Felipe. If I may add something regarding this, I mean, just to put, say, some clarity or additional clarity to this situation. I mean, we book following the accounting policy that we were told to. Before presenting results as of June, I mean, we called regulators, and we presented, I mean, basically, the shareholder agreement with Bankia.
Also we concluded that the attributable result for the 51% shareholding of Mapfre, it should be fully allocated to Caixa. Due to the length of the process and also because the members of the board representing Mapfre at the board didn't step down, we held the majority of votes at the board.
It was raised that we should book again and reflect in the attributable results the 51% shareholding of Mapfre as a profit contribution. Also with the agreement of the external auditors, we went back to the regulators to say that we should change the profit contribution from Bankia in the third quarter, and they fully agreed. I mean, sorry for the confusion, but we did what we were told to, and that was pretty clear.
Thank you. Thank you very much, Fernando. Carlos Peixoto from CaixaBank has a question on Spanish combined ratio. What are the expectations of the evolution of the combined ratios in the different Spanish business lines?
Well, Carlos, that's extremely difficult answer. We should expect a lot of moving parts, as I already mentioned. The third quarter has been a transitional quarter. We should weigh some increase in frequency, particularly in auto, in the coming quarter. We should reflect as well an increase in premiums earned from the increase in rates or the absence of the discounts and rebates. The remaining lines, I guess, we shouldn't expect no significant changes. That's basically my view.
Okay, thank you. Thank you very much, Fernando. Ivan Bokhmat from Barclays. Can you provide an update on Bankia Mapfre Vida joint venture? Is the deal completion still expected for 2021? I think that Fernando was quite clear during the presentation. He said that we were expecting in November the final appraisal from the external appraiser. That would give us to expect that everything will be completed by 2021. I don't know if, Fernando, you want to say anything else.
No, I mean, this is our expectation from our side. Let me tell you as well that I've read the paper, probably assuming that the paper is correct. A similar statement was made by Gonzalo Gortázar, the CEO of CaixaBank, saying that it should be expected, this deal completion by year-end s hould be completed. Yeah.
Okay. Thank you. Thank you very much. It seems that we don't have any further questions. Okay. So, yes, one more. Carlos Peixoto from CaixaBank asks about the expectation on net CAT losses on the fourth quarter.
Well, nobody knows what is gonna happen. I mean, so far, in the Atlantic, I mean, it has been a quiet season for hurricanes. Earthquakes, there is still a risk in any territory we are operating. Since the frequency cover has already been triggered, as I said at the presentation, the net effect of any individual CAT event would be pretty reduced.
Okay. That allows us to have some kind of visibility or peace of mind related with this kind of frequency cover that you were mentioning. There is another question.
Global risk. Yeah.
On global risks, sorry. Had a good quarter with lower volatility tails losses. What should we expect going forward?
Thank you. I mean, a couple of years ago, we implemented a new change in order to lower retention in global risk business, and also increase the commissions. The current quarter and also previous quarter are reflecting this change. Lower impact from losses and more stability in results. Let's say that we put a cap in order to reduce losses and also to increase gains. We are quite comfortable with this reduction in exposure in global risks.
Okay, thank you. It's quite a successful operation right now.
Absolutely.
Farquhar from Autonomous on 2021 guidance, does this guidance include Bankia, which is now the headline figures a little longer? Are we still only adjusting for nat cat, which would seem to imply that we are not adjusting for the COVID-related claims in arriving to the guidance figure?
Yeah, thank you, Farquhar. This is a question raised many times. When we mention the guidance, the first and part of the second quarter results contributed by Bankia was included in the guidance. Obviously, the first quarter pertained to Mapfre. The second quarter, it was part of the second quarter, because at that point, I mean, when we published the guidance, we didn't know what was the right moment when the board of directors representing Mapfre will step down.
We assumed that part of the profit for the second quarter will be included in the quarter. Actually, with the new accounting policy, let's say that the- If we assume that the second quarter was included or part of the second quarter was included in the guidance, the third quarter wasn't included in the guidance.
What we're doing with this new accounting treatment is just anticipate part of the capital gain where we will book when the transaction is completed b ecause the net equity doesn't change. It's the same as the transition date, which is the 31st of March. The only thing we're doing is adding to this net equity, the profit contribution from Mapfre. That's pretty simple.
Okay. From Ivan Bokhmat from Barclays, can you offer any early thoughts on IFRS 17?
Yeah. We're working on this project with external advisors. The project has had a lot of ups and downs. Provisional figures, they're not ready yet, Ivan. Let's say, I mean, our external advisors, we're working with Deloitte, EY, and also with SAP. We believe that probably after summer, I mean, we will be able to give you more color on this topic.
Okay. Philip Ross from Mediobanca and together with, Carlos Peixoto that has a similar interest on global risks. I mean, we already said that it was a good contributor to the results. What could we expect going forward? I mean, is this going to be provide a lot of volatility to our results or the way of managing global risks has changed?
No, we should be a more normalized and stabilization in loss ratio. We reduced our risk appetite. We reduced retention as well, increased commissions, as we mentioned. Let's say that we are limiting losses and also gains in order to have a narrower variation for profits. In the end, I guess that they will be quite similar trend in the future.
Also, we didn't renew some large policies with really bad experience in the past, and they were loss-making portfolios. Let's say that we should assume that the current trend for global risks will remain in the near future.
Thank you. Thank you very much, Fernando. Seems that there's no more questions. Thank you very much, everybody. I mean, we've been almost an hour here in this presentation. Before we close the call, we should move to logistics. I'm sure that most of you have received the invitation, but next Wednesday, November 3rd, I will be hosting together with the IR team two group meetings.
First, there will be a group in Spanish at 9:30 A.M. Central European Time, followed by another one in English at 3:00 P.M., also Central European Time. Both meetings should last around 40 minutes to an hour.
Please make sure that you confirm your attendance using the email invitation you received early this week, or get in touch with the IR team if you have any kind of issue. You have the contact details in the presentation. Please stay safe and thank you very much for your time. Fernando?
Yeah. Thank you, everybody, again, for your presence. Hopefully, you hear from us by year-end in order to give you more information regarding Bankia deal completion. Yes. I'm sure, I mean, we are very sure that we will finish this deal by year-end.
Okay. Thank you very much, Fernando. Thank you, everybody.
Bye-bye.