A.M. Best Affirms Groupama’s ‘A+’ Rating

October 10, 2003

A.M. Best Co. announced that it has affirmed the financial strength rating of A+ (Superior) of French mutual insurer Groupama and its subsidiaries, but has revised its outlook to “negative” from “stable.”

“The rating action reflects Groupama’s leading business position as the largest mutual in France and a level of consolidated risk-adjusted capitalisation commensurate with a superior rating, despite a significant deterioration in 2002,” said Best. “An offsetting factor is Groupama’s weakened operating performance.”

The rating agency explained the negative outlook as reflecting its “concerns that the volatility of the financial markets and Groupama’s exposure to SCOR [see related article] could put further pressure on Groupama’s capitalisation.” It also said 2003 earnings “may not be sufficient to support the current rating level.”

Best noted that “Groupama provides a broad range of insurance and financial services through a diverse range of distribution channels using two leading brand names, Groupama and GAN. The recent partnership agreement with Societe Generale to establish a retail banking franchise should further enhance the reach of both brands and enable significant cross-selling opportunities. France continues to be Groupama’s largest market, representing approximately 85% of total gross premiums in 2002, although this leaves Groupama over-exposed to trends and competitive pressures within this developed and saturated market.”

The group’s “consolidated risk-adjusted capitalisation remains at a superior level despite having deteriorated significantly during 2002, largely as a consequence of weak financial markets,” said Best. It also indicated that the group’s “balance sheet strength benefits from a stable and prudent reserve position, conservative investment portfolio and comprehensive reinsurance programme.”

Best’s concerns over the group’s weakened operating performance are the result of the net loss of 154 million euros ($180 million) it posted in 2002, compared to a profit in 2001 of 159 million euros ($187 million). Best noted that “the 2002 net result was driven by an exceptional provision of EUR 306 million (USD 321 million) on Groupama’s participation in SCOR.

“In 2002 Groupama’s non-life expense ratio increased by 2.9% to 26.8%, although this was partially offset by a 1.5% reduction in its consolidated non-life loss ratio to 78.9%. A.M. Best expects the consolidated non-life combined ratio to decline in 2003 as the loss experience continues to improve due to expense savings driven by economies of scale arising from the reduction in the number of regional mutuals.”

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