Fitch Ratings has affirmed Coface group’s major insurance entities, Compagnie Francaise d’Assurance pour le Commerce Exterieur and Coface North America Insurance Company’s Insurer Financial Strength (IFS) ratings at ‘AA-‘. The agency has also affirmed Compagnie Francaise d’Assurance pour le Commerce Exterieur’s Long-term Issuer Default Rating (IDR) at ‘A+’. The Outlooks on all ratings are Stable. Compagnie Francaise d’Assurance pour le Commerce Exterieur’s Short-term IFS rating has been affirmed at ‘F1+’. COFACE SA (formerly Coface Holding SAS)’s Long-term IDR has been affirmed at ‘A’ and Short-term IDR at ‘F1’. A full list of rating actions is at the end of this release.
KEY RATING DRIVERS
The affirmations reflect Fitch’s positive view on Coface’s leading market position in credit insurance, its very strong solvency, its improving earnings and its conservative investment policy.
Fitch views the capital base of the group’s main operating entity as strong, as reflected in a regulatory solvency ratio of 6.8 times the minimum required in 2012. This was supported by a solid underwriting performance, reflected in Fitch’s calculated net combined ratio of 93.6% for the group in 2012, although this slightly deteriorated compared with 89.1% posted in 2011. Nevertheless, the group reported a EUR129m net profit in 2012 representing an increase of 82% yoy (2011: EUR71m).
The group’s total financial commitments ratio fell to 1.2x in 2012 from 2.4x in 2011 (2010: 3.3x). The debt is mostly used to fund the group’s factoring operations. Although this indicator is high relative to Fitch’s guidelines for the rating category, the agency considers COFACE SA’s credit quality to be strong with good access to external financing as shown by its EUR250m commercial paper issuance in November 2012.
Fitch views Coface’s strategic importance to its parent company, Natixis (IDR: ‘A+’/Negative), as limited. Given Natixis’ weaker financial profile, Fitch believes that the ability of Natixis to support Coface would be constrained. Overall, Fitch views Natixis’ ownership of Coface as neutral to Coface’s ratings.
RATING SENSITIVITIES
Although unlikely in the short to medium term, factors that could trigger a rating upgrade include a new and financially stronger shareholding structure in which Coface’s strategic importance increases at the same time as the group’s standalone financial profile remains strong.
The ratings could be downgraded if Natixis’ credit quality deteriorates to the extent that capital is extracted from Coface to support Natixis, or if Coface’s standalone profile deteriorates as a result of increased insolvencies leading to a combined ratio above 100% and a material fall from current capital levels over a sustained period.
The rating actions are as follows:
Compagnie Francaise d’Assurance pour le Commerce Exterieur: IFS affirmed at ‘AA-‘; Outlook Stable Long-term IDR affirmed at ‘A+’; Outlook Stable Short-term IFS affirmed at ‘F1+’
COFACE SA (formerly Coface Holding SAS): Long-term IDR affirmed at ‘A’; Outlook Stable Short-term IDR affirmed at ‘F1’ Commercial Paper affirmed at ‘F1’
Coface North America Insurance Company: IFS affirmed at ‘AA-‘; Outlook Stable
Coface Finanz GmbH: Long-term IDR affirmed at ‘A+’; Outlook Stable
