S&P Revises Groupama Outlook to Negative; Affirms ‘A+’ Ratings

Standard & Poor’s Ratings Services has revised its outlook to negative from stable on Franch composite insurer Groupama S.A. S&P also affirmed the Group’s ‘A+’ long-term counterparty and insurer financial strength ratings.

“The negative outlook reflects our view of the increased pressure on Groupama’s capitalization mainly because of the sharp decline in the market value of its equity holdings over the past year, which has led to Groupama to report substantial unrealized capital loss positions and which, in our view, is weighing on Groupama’s risk-based capital adequacy,” explained credit analyst Virginie Crepy.

S&P said its “ratings on Groupama reflect our view of its strong competitive position in France, as well as its strong, although pressured, operating performance. Offsetting factors are Groupama’s capital adequacy that we see as not in line with the current ratings and its exposure to equity holdings.”

Crepy added that the “negative outlook reflects our opinion that it could be challenging for Groupama to restore capital adequacy to a level more consistent with the current rating level.”

In its analysis, S&P stated that in the “coming months, we expect Groupama to proactively manage its capital adequacy, to mitigate the impact of the current investment market environment, and to substantially limit the impact of any further weakening of investment markets. We expect management to play a positive role in restoring capitalization, and we do not expect operational earnings to exacerbate the pressure on capital adequacy.

“We could consider a downgrade in the coming months if Groupama’s net combined ratio, including the negative impact of the Klaus windstorm in 2009, increases to more than 102 percent–excluding the impact of any release of prudential margins in technical reserves–if life earnings further deteriorate and lead to a decline in new business margins below 1 percent, or if Groupama’s unrealized loss positions deteriorate. Furthermore, if Groupama exercises the call attached to its €750 million [$991 million] subordinated debt in July 2009, this could result in a rating action as it will in our view further weaken Groupama’s capital adequacy.

“We could revise the outlook to stable if Groupama exceeds our earnings expectations as stated above and if it restores capitalization to what we consider as strong levels, either through improving investment markets, through risk mitigation, or through a capital raising.

Source: Standard & Poor’s – www.standardandpoors.com