Fitch Ratings has today downgraded the French mutual insurance company La Mondiale’s Insurer Financial Strength (IFS) rating to ‘A-‘ from ‘A’. The agency has simultaneously downgraded La Mondiale’s Long-term Issuer Default rating (IDR) to ‘BBB+’ from ‘A-‘ and its subordinated debt rating to ‘BBB’ from ‘BBB+’. The Outlooks for La Mondiale’s IFS rating and Long-term IDR are Negative.
The downgrade reflects the still moderate, although recovering, profitability and capital adequacy of the group for an insurer rated in the single ‘A’ category. The group’s solvency has clearly benefited from credit spread tightening on corporate bonds due to improved liquidity conditions as well as the recovery of European equity markets since March 2009. However, the unfavourable conditions in the French real estate market, as well as the shifting demand towards euro-denominated products, should continue to pressure solvency margins. The Negative Outlook reflects Fitch’s view of a potential further decline in the group’s capital strength in the current volatile financial environment and concerns regarding the ability of La Mondiale to accelerate the rebuilding of its capital base via retained earnings.
Fitch estimates that the recovery of La Mondiale’s capital adequacy remains linked to the performance of the financial markets and on management’s decisions, especially on the level of bonus rates offered to policyholders. If materially lower, Fitch believes such a decision would be beneficial for the group’s profitability and solvency.
La Mondiale’s ratings continue to reflect the insurer’s good position as a leading player in the specialist fields of retirement products and savings-type life insurance in France. They also reflect the prudent investment strategy pursued by the group and its good liquidity position. Fitch notes that due mainly to its business-mix, La Mondiale has continued to report stable surrender rates, even through a difficult operating period.
The creation of a common mutual insurance entity between the provident institution AG2R Prevoyance and La Mondiale has allowed the implementation of business and organisational cooperation. A common distribution network is now operating and Fitch believes this partnership will likely bring further benefits in terms of synergies to La Mondiale in the medium term. This partnership has in Fitch’s view a limited impact on La Mondiale’s financial strength as the financial support arrangement agreed between the two organisations has been capped at a moderate level compared with La Mondiale’s surplus and as a result is not considered as a key rating factor by Fitch.
The Outlook could revert to Stable if La Mondiale demonstrates its ability to rebuild capital strength to a level more in line with an ‘A’ range rating. Conversely, the company’s rating would be downgraded if La Mondiale is unable to restore its capital base to a level compatible with its current ratings or if the financial environment deteriorates materially, leading to unrealised capital losses.
La Mondiale is a mutual company providing life and pensions insurance products via three key business units: “Experts” (salaried agents), “ARIAL Assurance” (50/50 joint venture with AG2R dedicated to corporate clients) and “Partenaire” (partnership distribution agreements with intermediaries in the high-net-worth individual segment). In 2008, the group’s gross written premiums reached EUR5.1bn and it ranked among the top-10 providers of French life and benefits products.
With Reuters
