S&P Report Indicates French Insurance Market Remains Stable

November 15, 2005

Standard & Poor’s Ratings Services has issued a report – “Insurance Industry Risk Analysis: France (Republic of),” which indicates that the rating agency is “maintaining its stable outlook on the French insurance industry.”

S&P said the stable outlook indicates that its insurer financial strength ratings on the country’s insurers are more likely to remain the same than to change. “The key factors supporting the industry’s continued stability are underwriting discipline and strong capitalization in property/casualty, as well as higher new business margins, a disciplined payout policy, and solid long-term growth prospects in the life sector,” stated credit analyst Emmanuelle Calès, lead author of the report.

S&P noted: “As a whole, the industry boasts strong and resilient solvency, conservative reserving, and strong financial flexibility. It also benefits from moderately low economic risk, due to the strength and inherent stability of the economy of the Republic of France (sovereign rating AAA/Stable/A-1+), despite prospects for sluggish GDP growth.”

“Accounting and regulatory changes, namely the switch to IFRS and Solvency II, do create uncertainties, but are unlikely to dramatically alter the industry’s profile and financial strength, owing to a high prevailing level of consolidation,” Calès indicated. S&P said these changes “are nevertheless likely to put further merger pressure on some small and midsize insurers, especially mutual health insurers, which might not meet the minimum revised solvency margin imposed by Solvency II.”

The rating agency explained that the “implementation of Phase 1 of IFRS by listed insurers for their first-half 2005 earnings reports was almost a nonevent with little impact on financials. Increased volatility in shareholders’ equity must be expected, however, and will materialize if and when interest rates rise. Industry risk in life insurance is moderately low, reflecting widening new business margins, solid long-term growth opportunities, strong domestic savings as a sustainable driver, and prudent regulation and product design.

“Market performance remains challenged, however, by low interest rates. Industry risk in property/casualty insurance is moderately low, reflecting effective and strengthened underwriting discipline across all business lines and strong capitalization bolstered by one of the highest reserving ratios in Europe.”

S&P warned, however, that the “industry’s determination to maintain strong underwriting discipline has yet to be tested through the cycle, in what is one of the fiercest European markets. That test may soon be at hand, as the French motor insurance cycle is now showing signs of peaking.”

The report is available to subscribers of RatingsDirect, Standard & Poor’s Web-based credit research and analysis system, at www.ratingsdirect.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-9823 or sending an e-mail to research_request@standardandpoors.com. Ratings information can also be found on Standard & Poor’s public Web site at www.standardandpoors.com; under Credit Ratings in the left navigation bar, select Find a Rating, then Credit Ratings Search. The public site posts S&P’s latest reports and ratings for 24 hours after they’ve been issued.

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