Best Affirms Groupama Ratings

November 10, 2006

A.M. Best Co. has affirmed the financial strength rating (FSR) of “A” (Excellent) and the issuer credit rating (ICR) of “a” of France’s Groupama S.A. Best also affirmed the FSR of “A” (Excellent) and the ICR of “a” of Groupama Vie and Groupama Transport, and the debt rating of “bbb+” on the €500 million ($642 million) perpetual subordinated notes and the €750 million ($962 million) subordinated notes due in 2029 issued by Groupama. The outlook for all the ratings remains stable.

“The ratings of Groupama reflect its excellent consolidated risk-adjusted capitalization, as well as its leading business position in France,” said Best. “A partially offsetting factor is Groupama’s relatively weak performance in the non life sector.”

Best said it “expects Groupama’s risk-adjusted capitalization to remain excellent in 2006, factoring the anticipated growth in life, health and retail banking. Groupama’s shareholders’ funds are expected to improve through retained earnings at year-end 2006; however, this will be partially offset by lower revaluation reserves due to higher long-term interest rates.”

The rating agency also indicated that it “believes that Groupama’s capitalization remains sensitive to interest rate changes partly due to the long duration of its bond portfolio. Groupama is planning to finance its ambitious acquisition plan by an initial public offering, although the timeline is uncertain.”

Best expects Groupama’s combined net income “to increase slightly in 2006 to €550-600 million (USD 698-762 million) (versus €544 million [USD 691 million] in 2005), mainly driven by stable life earnings of approximately EUR 240-260 million (USD 305-330 million) and higher unrealized gains on hedging derivatives.

“Groupama’s non life underwriting performance is likely to slightly improve but will remain relatively weak in 2006 with a combined ratio of approximately 101 percent in 2006, compared to 102.4 percent in 2005.” Best said it “expects that the profits from higher discount rates for existing annuity reserves are likely to be offset by deteriorating underwriting results in motor due to softening rates and increased claims for more volatile risks, such as fire and commercial lines.”

However Best cautioned that non-life results are likely to “continue to be adversely impacted by high expense levels, particularly in respect of Gan Assurance Iard, the tied-agents business.”

Groupama has a strong position in the French Market, and Best indicated that it “will maintain its position as the second-largest non-life insurer in France, despite a strong competitive environment.” Best also expects consolidated non-life gross premiums written to “grow moderately by 2 percent at €7.1 billion (USD 9 billion) as growth in domestic and international business is likely to be partly offset by a decline in motor rates. In health and accident, the company is likely to strengthen its leading position as it benefits from the partial shift of state-funded health cover to private insurance.

“As a result, A.M. Best expects gross premiums written to increase by 4 percent-6 percent to EUR 2.1 billion (USD 2.7 billion) in 2006. In the life sector, despite an anticipated increase in gross premiums written by 5 percent-6 percent to EUR 4.4 billion (USD 5.6 billion), Groupama is losing market share as overall growth rates are lower than that of its competitors.

The ratings of Groupama Vie and Groupama Transport reflect their integral role within the group. In addition, Groupama Transport benefits from a guarantee provided by Groupama.”

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