S&P Affirms Groupama’s ‘A’ Ratings; Ups Outlook to ‘Positive’

April 17, 2007

Standard & Poor’s Ratings Services has revised its outlook on French insurer Groupama S.A. and its core subsidiaries to positive from stable, and has affirmed its ‘A’ long-term counterparty credit and financial strength ratings.

“The outlook revision reflects continuing improvement in Groupama’s operating performance, confirmed by strong 2006 earnings,” stated S&P credit analyst Lotfi Elbarhdadi. “This improvement indicates Groupama’s ability to take advantage of good market conditions and to increasingly control the volatility of its earnings through better underwriting discipline. Also factored in are Groupama’s ongoing efforts to rationalize and strengthen its international presence.”

S&P said the “ratings reflect Groupama’s improving operating performance, its leading competitive position in France, and its strong capitalization. Partly offsetting these positive factors are still-high, although declining, operating expenses, constraining the quality of earnings, and a significant reliance on earnings generated in the French non-life sector.

Groupama wrote €13.9 billion [$18.8 billion] in gross premiums in 2006–€6.9 billion [$9.34 billion] in property/casualty insurance, €2.5 billion [$3.38 billion] in accident and health (A&H), and €4.5 billion [$6.09 billion] in life–with 17 percent written outside France.”

Elbarhdadi explained that the “positive outlook reflects our expectation that the earnings improvements in 2006 are sustainable, based on better claims control, and improved quality of earnings through reduced expenses and greater diversification.”

S&P also indicated that the “non-life combined ratio is expected to remain below 102 percent even in the case of worsening market conditions, helped by further expense ratio reductions. Life business is expected to grow profitably and to post strong performance. The outlook also reflects Groupama’s ability to maintain strong capitalization and financial flexibility.

“The current ratings could be raised over the 2007-2008 horizon if the non-life combined ratio remains stable and below 102 percent, and if life business profitability reported on a European embedded value basis shows ratios in line with those of local peers. Alternatively, the outlook could return to stable if the quality of capitalization or competitive position were to deteriorate, if the non-life combined ratio were to become higher than 102 percent, or if life operating performance were significantly below that of peers.”

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