Standard & Poor’s Ratings Services has placed Groupama UK on CreditWatch with positive implications.
Groupama UK’s parent has agreed to sell the company’s non-life insurance business to Ageas UK. The CreditWatch placement reflects S&P’s expectation that once the acquisition has officially completed, the ratings on Groupama UK will no longer be constrained by those on Groupama S.A. (BB/Negative/–). Until completion, we understand that, based on regulatory restrictions and contractual arrangements, Groupama S.A. has limited ability to weaken the financial risk profile of Groupama UK, and little incentive to do so.
The ratings on Groupama UK reflect our view of its good stand-alone credit characteristics. These include its conservative investment portfolio, a good and improving operating performance, and a good competitive position. Partially offsetting these strengths are the long-term uncertainty surrounding the insurer’s underperformance in its commercial motor and property accounts and Groupama UK’s concentration in the very competitive U.K. motor insurance market, from which it derived 51% of its premiums in 2011.
Additionally, there is some uncertainty regarding the continuity of Groupama UK’s broker relationships and commercial business given the recent financial pressures at Groupama S.A. and following the sale of part of the group’s U.K. broking operations. Groupama UK and the U.K. broking arm operate as a distinct and independent business unit within the Groupama group. The September 2012 agreement that Groupama S.A. signed with Ageas UK covers the sale of the group’s U.K. non-life insurance business but excludes the broking services.
We expect to resolve our CreditWatch placement on approval of the acquisition by the U.K.’s Financial Services Authority. If the acquisition goes through, the rating on Groupama UK will be based on our assessment of its stand-alone financial and business characteristics. We currently expect to raise the ratings on Groupama UK to the ‘BBB’ category when the transaction completes. This is expected to take place during the fourth quarter of 2012.
In the event that the acquisition does not go through, we will resolve the CreditWatch placement and the ratings on Groupama UK will remain constrained by those on Groupama S.A.
