TEXT-Fitch affirms Coface's IFS at 'AA-';outlook stable

Thu Nov 15, 2012 8:48am EST

Coface's decision to convert three of its European subsidiaries into branches to improve capital fungibility within the group led to the ratings' withdrawal of: Coface Kreditversicherung AG including its holding company Coface Deutschland, in Germany; Coface Assicurazioni Spa in Italy; and Coface Austria Kreditversicherung AG in Austria. Fitch continues to factor the performance of these three newly converted branches into Coface S.A.'s ratings.

Coface's total financing and commitments ratio - a comprehensive measure of debt-related leverage - fell to 1.9x in H112 from 2.4x in 2011 (2010: 3.3x). Although this indicator remains high according to Fitch's insurance rating guidelines, most of the debt is operating debt used to support the group's factoring operations, and is therefore excluded from Fitch's calculation of Coface's financial leverage, which is commensurate with the rating level, at just 1% at end-H112. Moreover, the agency considers Coface's financial flexibility to be strong, with access to external financing demonstrated by the company's recent EUR250m commercial paper issuance.

Fitch views Coface's strategic importance to its parent company, Natixis (IDR: 'A+'/Negative), as limited. Given Natixis' weaker financial profile, Fitch believes that the ability of Natixis to provide support to Coface would be constrained. Overall, Fitch views Natixis' ownership of Coface as a neutral to Coface's ratings.

Although unlikely in the medium term, factors that could trigger a rating upgrade include a new and financially stronger shareholding structure in which Coface's strategic importance to Natixis increases at the same time as the group's standalone financial profile remains strong.

The ratings could be downgraded if Natixis' credit quality deteriorates to the extent that capital is extracted from Coface to support Natixis. The ratings could also be downgraded if Coface's standalone profile deteriorates as a result of increased insolvencies leading to a combined ratio above 100% for a prolonged period and a material fall from current capital levels.

Coface is the third-largest international credit insurer, with an estimated 25% global market share and gross written premiums of EUR1.4bn at end-2011. The group's competitive advantages are its strong franchise, consistent strategy and IT systems that facilitate streamlined underwriting under strict guidelines. Coface has a solid standing in the complementary businesses of credit information, factoring and debt collection.

The rating actions are as follows:

Coface S.A.:

IFS affirmed at 'AA-'; Outlook Stable

Long-term IDR affirmed at 'A+'; Outlook Stable

Short-term IFS affirmed at 'F1+'

Coface Holding S.A.S.:

Long-term IDR affirmed at 'A'; Outlook Stable

Short-term IDR affirmed at 'F1'

Commercial Paper affirmed at 'F1'

Coface Kreditversicherung AG:

IFS withdrawn at 'AA-'; Outlook Stable

Short-term IFS withdrawn at 'F1+'

Coface Assicurazioni Spa:

IFS withdrawn at 'AA-'; Outlook Stable

Coface Austria Kreditversicherung AG:

IFS withdrawn at 'AA-'; Outlook Stable

Coface North America Insurance Company:

IFS affirmed at 'AA-'; Outlook Stable

Coface Finanz GmbH:

Long-term IDR affirmed at 'A+'; Outlook Stable

Coface Deutschland AG:

Long-term IDR withdrawn at 'A+'; Outlook Stable

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