S&P Affirms French Insurer Groupama at ‘A’; Outlook Stable

Standard & Poor’s has affirmed its ‘A’ long-term counterparty credit and insurer financial strength ratings on French mutual insurance group Caisse Centrale des Assurances Mutuelles Agricoles (Groupama). The outlook on both ratings is stable.

“The ratings reflect Groupama’s strong business position, improving underlying underwriting performance, and strong capitalization,” said Standard & Poor’s credit analyst Emmanuelle Cales. These factors are offset by the group’s limited earnings base in absolute terms, and therefore, its limited financial flexibility.

Groupama is now reportedly one of the top players in the French property/casualty market. Its original business consisted of providing insurance to the agricultural sector. The company has recently undertaken a reorganization process aimed at supporting its European growth strategy.

Groupama is the domestic market leader in agricultural insurance, with a 60 percent share of the French market. It is also a leading player in the domestic property/casualty market (number two, with a 13 percent market share), backed by good name recognition and diversified local distribution networks. Groupama’s significant exposure to French natural risks is partly balanced by its international exposure (16 percent of premium income) to other European markets (the U.K., Spain, and Italy). The group also underwrites life insurance, leveraging its large customer base.

The group has recorded disappointing profitability over the past five years, ROE and ROR have averaged 2.3 percent and minus 1 percent, respectively. However, the quality of earnings has improved as evidenced by both a 3 percent reduction in the combined ratio to 106.7 percent, and a strong 80 percent increase in underlying results in 2002, driven by the life business.

The stable outlook reflects Standard & Poor’s expectation that Groupama will continue to be a leader in the French natural catastrophe and property/casualty markets.

The company is expected to generate business growth in line with the expected 6 percent growth in the French property/casualty market. Life premium income is likely to grow more rapidly, driven by an exceptional 10 percent increase in premium income from group policies.

In Europe, Groupama is looking to strengthen its position as the largest mutual insurer and the region’s 17th-largest among all insurers by growing its market share in Spain and Italy through acquisitions, should the opportunity arise.

“Operating performance is likely to gradually improve, with the combined ratio expected to fall to about 105 percent in 2003 as the result of strong underwriting discipline, especially at subsidiary GAN Assurances IARD,” said Cales.

Groupama’s capital adequacy ratio is expected to gradually improve but remain within the ‘A’ range, thanks to improving earnings generation, but would be pressured by any acquisitions. Its capital adequacy ratio, according to Standard & Poor’s risk-adjusted capital model, was close to 130 percent at the end of 2002.