March 20 -
-- France-based insurer Groupama S.A. has published its 2011 annual results, which include a material net loss of EUR1.8 billion and a regulatory solvency margin at year-end 2011 of 107%.
-- We are maintaining our 'BBB-' long-term ratings on Groupama and its guaranteed subsidiaries on CreditWatch negative.
-- We are also maintaining the 'BB+' ratings on Groupama GAN Vie on CreditWatch negative.
-- The 'BBB-/A-3' long- and short-term ratings on Groupama Banque remain unaffected.
-- The CreditWatch placement reflects our view of Groupama's continued exposure to volatile market conditions and the execution risks associated with management's plan to strengthen the group's financial profile.
On March 20, 2012, Standard & Poor's Ratings Services maintained its 'BBB-' long-term counterparty and financial strength ratings on France-based insurer Groupama S.A. and its guaranteed subsidiaries on CreditWatch with negative implications. Also remaining on CreditWatch negative are the 'BB+' ratings on Groupama GAN Vie and the 'BB' ratings on Groupama's hybrid capital issues. All the ratings were placed on CreditWatch with negative implications on Dec. 15, 2011.
Our 'BBB-/A-3' long- and short-term counterparty credit ratings on the group's banking subsidiary Groupama Banque are not affected by today's rating action.
We are updating our CreditWatch placement to reflect our view that Groupama's recently published 2011 financial results further highlight its financial profile's vulnerability to changing market conditions. Specifically, the group posted a substantial EUR1.8 billion net loss at year-end 2011 and a resulting regulatory solvency margin of 107%, which includes the positive one-off actions of SILIC and GAN Eurocourtage's operations (for further details see "S&P Downgrades France-Based Groupama S.A. To 'BBB-' On Weak Capital Adequacy And Solvency Levels; Watch Negative," published on Dec. 15, 2011.)
We note that capital markets picked up substantially since year-end 2011, and assume on this basis that Groupama's current solvency position is likely stronger than at the end of last year. However, we believe that Groupama's financial profile remains particularly sensitive to capital markets owing to its still substantial exposure to equities and to Southern European sovereign issuers.
We understand that Groupama's management intends to further derisk its balance sheet to secure higher solvency margins in the long term. That said, we believe this will largely depend on management's ability to execute such actions, which may be challenging given the current adverse economic environment.
Groupama's reported net loss of EUR1.8 billion in 2011 compares with a profit of EUR398 million in 2010. The sharp deterioration was mainly caused by investment losses, with asset impairment charges relating to Greek government bonds (EUR1.6 billion), as well as asset impairment charges and realized losses on strategic holdings (EUR1.5 billion). Groupama posted a net loss despite a positive EUR578 million contribution from the SILIC operation and an operating profit of EUR309 million. As a result, Groupama also reported a solvency margin of 107% in 2011, including the full regulatory benefits attached to SILIC and GAN Eurocourtage's operations.
We aim to update or resolve the CreditWatch placement within the next three months, after having fully reassessed Groupama's business risk and financial risk profiles in light of the latest developments. As part of our CreditWatch resolution, we will also review additional strategic actions that management may take to derisk Groupama's balance sheet and stabilize its financial profile.
We could affirm or lower the ratings depending on whether the company successfully executes these actions. We could lower the ratings if Groupama's financial profile further deteriorates with adverse implications for the company's solvency.
If we were to lower the ratings on Groupama to the speculative-grade category (that is, 'BB+' or below), we would also widen the notching on Groupama's hybrid securities to a minimum of three notches below the long-term counterparty credit rating, from two notches currently. We may decide to increase the number of notches if we perceive that interest payment deferral risk has heightened.
Related Criteria And Research
-- Interactive Ratings Methodology, April 22, 2009
-- Hybrid Capital Handbook: September 2008 Edition, Sept. 15, 2008
-- S&P Downgrades France-Based Groupama S.A. To 'BBB-' On Weak Capital Adequacy And Solvency Levels; Watch Negative, Dec. 15, 2011
Counterparty Credit Rating BBB-/Watch Neg/--
Junior Subordinated BB/Watch Neg
Groupama Insurance Co. Ltd.
Financial Strength Rating BBB-/Watch Neg/--
Groupama GAN Vie
Counterparty Credit Rating BB+/Watch Neg/--
Financial Strength Rating BB+/Watch Neg/--