Fitch Ratings has revised the rating Outlook on Groupama S.A. and four of its core insurance subsidiaries’ to Negative from Stable and affirmed their Insurer Financial Strength (IFS) Ratings at ‘A’. The subsidiaries are Groupama GAN Vie, GAN Assurances, GAN Eurocourtage and Groupama Transport. Fitch has also affirmed Groupama S.A.’s Long-term Issuer Default Rating (IDR) at ‘A-‘ and subordinated debt ratings at ‘BBB’. A full rating breakdown is provided at the end of this comment.
The Negative Outlook reflects the deterioration of the group’s profitability and capital adequacy as well as the challenging financial and claims environment which negatively impacts Groupama’s financial profile.
The key rating drivers that could result in a downgrade include deterioration or limited recovery of the group’s financial profile, especially in terms of solvency, as well as its inability to translate tariff increases into sustainably stronger underwriting performance in non-life (combined ratio near 100%).
The rating rationale is Groupama’s satisfactory solvency and low debt in relation to the risk profile, which benefits from a large degree of business and risk diversification. The ratings also take into account its solid business position and marginal profitability.
Fitch expects Groupama’s capital adequacy to recover from the low level reached at year-end 2010, as growing retained earnings should compensate for increased capital requirements largely relating to internal growth. Fitch considers that Groupama’s largest challenge will be to successfully finalise the ongoing integration of recently acquired operations in several markets to deliver significant synergies expected in the coming years, and address goodwill accumulated on the balance-sheet. Fitch also expects Groupama to gradually reduce the share of its equity investments.
Excluding the impact of financial market volatility, Groupama’s profitability can likely still be improved. However, competitive underwriting conditions in a number of business lines and the repeated occurrence of natural catastrophe events have challenged the group’s ability to achieve significant earnings improvement in recent years, including 2010.
Fitch has affirmed the following ratings of Groupama S.A. and its subsidiaries:
Groupama S.A.
IFS rating: ‘A’; Outlook revised to Negative from Stable
Long-term IDR: ‘A-‘; Outlook revised to Negative from Stable
Subordinated debt: ‘BBB’
Junior subordinated debt: ‘BBB’
Groupama GAN Vie
IFS rating: ‘A’; Outlook revised to Negative from Stable
GAN Assurances
IFS rating: ‘A’; Outlook revised to Negative from Stable
GAN Eurocourtage
IFS rating: ‘A’; Outlook revised to Negative from Stable
Groupama Transport
IFS rating: ‘A’; Outlook revised to Negative from Stable
Source : Fitch Ratings press Release
