Press Releases: The Insurance Insider | May 16th 2011
The Insurance Insider | May 16th 2011
BREAKING NEWS ALERT
Groupama loses crucial A- rating on sovereign debt fears French mutual insurance group Groupama's insurer financial strength rating has been downgraded from A- to BBB+ by Standard & Poor's (S&P) because of its "material exposure to Greek government bonds".
A rating below A- is generally considered a handicap to an international (re)insurer, although its effect is most acute for those with exposure to the US market, where downgrade clauses are a common feature in (re)insurance wordings.
On 9 May S&P lowered Greece's sovereign rating to B from BB to reflect concerns about the sustainability of its debt burden.
S&P's note did not give details of the extent of Groupama's exposure to Greek debt. However, it said that the sovereign downgrade "will significantly increase capital requirements for credit risks and in turn further weaken Groupama's capital adequacy".
The ratings agency held out little prospect of Groupama recovering its A- rating in the near term. "We therefore believe it is unlikely that Groupama's capital adequacy under our model will recover to the levels supportive of strong financial strength ratings in the next two years."
S&P said that it believed that debt reductions of 50 percent or more might be necessary to restore the Greek government's debt burden to a sustainable level.
In addition, S&P awarded the BBB+ rating a negative outlook. "The negative outlook reflects continuing uncertainties we perceive about Groupama's magnitude and speed of improvement in operating performance and capital adequacy over the next two years," it said.
The ratings agency said it expected a combined ratio of around 102 percent in 2011, which would fall to between 102 percent and 100 percent the following year.
And it added that the group's operating return on embedded value was likely to stand at around 5 percent in 2011.
Fears about the consequences for (re)insurers of the recurrent sovereign debt crises in Europe continue. There have been fresh indications of late that the Greek government may be forced to renegotiate its debt with creditors.
Last week Banco Espirito Santo analyst Joy Ferneyhough called attention to the size of Munich Re's exposure to default from the peripheral Eurozone sovereign nations - Portugal, Ireland, Greece and Spain, known in the markets as the "Pigs".
"Munich retains one of the highest exposures to Greek/Portuguese/Irish debt with an approximate EUR2.8bn gross of exposures here. This is circa 10 percent of tangible book value versus a sector average now of <2-3 percent," she said.
Mapfre is the (re)insurer with the biggest exposure to Pigs sovereign debt. Towards the end of last year it had 48 percent of its equity invested in Pigs paper, with the vast majority in Spanish government bonds.
However, the carrier has signalled its confidence in the Spanish government by making clear that it has no intention of restructuring its investment portfolio to scale back its exposure.
Last year, Groupama outlined tentative plans to IPO later this year or in 2012.
Groupama loses crucial A- rating on sovereign debt fears French mutual insurance group Groupama's insurer financial strength rating has been downgraded from A- to BBB+ by Standard & Poor's (S&P) because of its "material exposure to Greek government bonds".
A rating below A- is generally considered a handicap to an international (re)insurer, although its effect is most acute for those with exposure to the US market, where downgrade clauses are a common feature in (re)insurance wordings.
On 9 May S&P lowered Greece's sovereign rating to B from BB to reflect concerns about the sustainability of its debt burden.
S&P's note did not give details of the extent of Groupama's exposure to Greek debt. However, it said that the sovereign downgrade "will significantly increase capital requirements for credit risks and in turn further weaken Groupama's capital adequacy".
The ratings agency held out little prospect of Groupama recovering its A- rating in the near term. "We therefore believe it is unlikely that Groupama's capital adequacy under our model will recover to the levels supportive of strong financial strength ratings in the next two years."
S&P said that it believed that debt reductions of 50 percent or more might be necessary to restore the Greek government's debt burden to a sustainable level.
In addition, S&P awarded the BBB+ rating a negative outlook. "The negative outlook reflects continuing uncertainties we perceive about Groupama's magnitude and speed of improvement in operating performance and capital adequacy over the next two years," it said.
The ratings agency said it expected a combined ratio of around 102 percent in 2011, which would fall to between 102 percent and 100 percent the following year.
And it added that the group's operating return on embedded value was likely to stand at around 5 percent in 2011.
Fears about the consequences for (re)insurers of the recurrent sovereign debt crises in Europe continue. There have been fresh indications of late that the Greek government may be forced to renegotiate its debt with creditors.
Last week Banco Espirito Santo analyst Joy Ferneyhough called attention to the size of Munich Re's exposure to default from the peripheral Eurozone sovereign nations - Portugal, Ireland, Greece and Spain, known in the markets as the "Pigs".
"Munich retains one of the highest exposures to Greek/Portuguese/Irish debt with an approximate EUR2.8bn gross of exposures here. This is circa 10 percent of tangible book value versus a sector average now of <2-3 percent," she said.
Mapfre is the (re)insurer with the biggest exposure to Pigs sovereign debt. Towards the end of last year it had 48 percent of its equity invested in Pigs paper, with the vast majority in Spanish government bonds.
However, the carrier has signalled its confidence in the Spanish government by making clear that it has no intention of restructuring its investment portfolio to scale back its exposure.
Last year, Groupama outlined tentative plans to IPO later this year or in 2012.