TEXT-S&P summary: MMA IARD Assurances Mutuelle

Thu Dec 20, 2012 7:38am EST

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(The following statement was released by the rating agency)

Dec 20 -

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Summary analysis -- MMA IARD Assurances Mutuelle ------------------ 20-Dec-2012

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CREDIT RATING: Country: France

Local currency A-/Watch Dev/--

Primary SIC: Fire, marine, and

casualty

insurance

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Credit Rating History:

Local currency Foreign currency

30-Nov-2010 A-/-- --/--

20-Nov-2007 A/-- --/--

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Rationale

The ratings on France-based property/casualty (P/C) insurer MMA IARD Assurances Mutuelle (MMA), a major player in the French P/C market, reflect Standard & Poor's Ratings Services' view of its strong competitive position and its prudent investment strategy. MMA's financial management practices, which we consider weak in the life business, and its operating performance, which we view as not commensurate with the current ratings, partially offset these strengths .

MMA's competitive position is strong in the French P/C market, where it holds a market share of 9.7% and has access to a large base of roughly three million customers. It has achieved its solid competitive position owing to its strong franchise, long-standing expertise in the French P/C market and strong distribution capabilities, thanks to the third-largest tied agent network in France.

We view MMA's investment profile as prudent, with low credit risk (86% of bonds in the A range or above) that reflects management's policy of primarily investing in highly rated government bonds and liquid fixed-income securities. MMA's exposure to Southern European bonds, in particular Italy, is manageable, in our view. MMA has some exposure to equities (8% of invested assets at end-2011) but the insurer's long-term holding policy, with a higher cushion amount of unrealized gains on equities than peers (17% of book value at end-2011), mitigates our concerns.

We believe MMA's capitalization is strong. According Standard & Poor's risk-based model, the insurer's capital adequacy has historically been at least consistent with the current ratings. It also showed more resilience than peers during the latest capital market downturn, and was maintained at strong levels at end-2011. Quality of capital is also satisfactory, with core shareholders' funds representing 54% of total adjusted capital (TAC). Both reinsurance and reserving practices are considered adequate.

However, we consider MMA's financial management practices in its life sector to be weak and not in line with the importance of this business for the group, with life reserves representing 67% of total technical reserves at end-2011. In our view, MMA's asset liability management (ALM) practices remain basic compared with peers, despite the introduction of stochastic modeling with a value-at-risk approach. The company has not yet defined formal profitability indicators to accurately measure performance in the life business.

We believe that MMA's operating performance is not commensurate with the ratings. In the P/C business, MMA's net combined ratio at year-end 2011 improved to 101.5%, compared to a high 105.7% in 2010, and met our expectations. However, its net combined ratio continues to compare negatively with that of most players in the P/C insurance market, mostly because we think MMA's pricing policy has historically been more aggressive than peers'. In our view, operating performance remains poor in the life business. MMA recorded a low, albeit positive, life technical result of EUR11 million in 2011, compared with negative EUR28 million in 2010. In 2011, the life technical result represented only 0.07% of MMA's mathematical reserves, which we consider weak.

CreditWatch

On Nov. 21, 2012, Standard & Poor's Ratings Services placed its 'A-' insurer financial strength and counterparty credit ratings on MMA and its subsidiary Covea Insurance Plc on CreditWatch with developing implications. For further information, please see "MMA IARD Assurances Mutuelles 'A-' Ratings Placed On CreditWatch Developing On Covea Restructuring News," published Nov. 21, 2012).

We aim to resolve or update the CreditWatch within the next 90 days. During this period, we will assess the implications of the restructuring on MMA's business and financial profiles, and in turn, on the ratings. We understand the restructuring will be completed by year-end 2012.

We could raise, affirm, or lower the ratings on MMA, depending on our views of the potential implications on its financial and business risk profiles. An upgrade or a downgrade, if any, is unlikely to exceed two notches.

Related Criteria And Research

-- Interactive Ratings Methodology, April 22, 2009

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