(The following statement was released by the rating agency)
Dec 20 -
Summary analysis -- CNP Assurances -------------------------------- 20-Dec-2012
CREDIT RATING: Country: France
Local currency A+/Negative/--
Primary SIC: Life insurance
Mult. CUSIP6: 12620R
Credit Rating History:
Local currency Foreign currency
27-Jan-2012 A+/-- --/--
29-Sep-2009 AA-/-- --/--
The ratings on CNP Assurances, France’s leading life insurer, continue to reflect Standard & Poor’s Ratings Services’ view of the group’s strong competitive position in the French life insurance market and strong long-term financial flexibility. The ratings also factor in support from CNP’s largest shareholder, state-owned Caisse des Depots et Consignations (CDC; AA+/Negative/A-1+). Partly offsetting these strengths is CNP’s just adequate capital position, which is not at the level we would expect for the current ratings. Further, we see operating performance as a constraint to the rating.
CNP has a unique business model, benefiting from very solid support and operational links with its shareholders CDC, Groupe BPCE (whose central body is rated A/Negative/A-1) and La Banque Postale (A+/Negative/A-1). This support takes the form of a shareholders’ pact and a long-term exclusive distribution agreement with the retail banks of Groupe Caisse d‘Epargne and La Banque Postale. This agreement gives CNP access to more than 20,000 sales outlets across France and an extremely wide client base of 18 million policyholders.
CNP’s earnings fundamentals remain sound, thanks to the group’s unparalleled size in the French market. The group is able to access an extremely large retail client base in the French savings market, which generates very stable, but low margins. The group’s strong competitive position in the profitable creditor term life business also underpins earnings, as do the profits generated by its operations in Brazil. However, we believe the high weight of capital-intensive euro-denominated policies in CNP’s portfolio and low investment yields are constraining the company’s current and future earnings. Our base case assumptions are an operating return on average market-consistent embedded value above 10% and new business margins at about 1.3% over the next two years. On an IFRS basis we expect a consolidated net result of at least EUR900 million before dividends for 2012. Beyond 2012 we expect the net result will remain in the range EUR900 million to EUR1.1 billion over 2013.
Capitalization, although improving, remains a relative weakness to the ratings. It recovered over 2012 thanks to greater buoyancy in the capital markets, the dividend paid in shares, and a de-risking program of the asset strategy. In particular, the exposure to lower-rated European sovereign bonds has fallen. However, we believe capitalization remains a key source of weakness to the rating. Under Standard & Poor’s risk-based insurance capital model, CNP’s only adequate capital assessment stems from its still material exposure to equities and Southern European bonds, as well as its reliance on soft forms of capital, mainly unrealized capital gains and value in force.
We continue to factor into the ratings one notch of support from CDC, CNP’s largest shareholder. This reflects the application of our banking group methodology for moderately strategic subsidiaries. CDC has a 40.5% stake in CNP’s capital (of which 36.9% is included in the shareholders’ agreement), demonstrating to us this key shareholder’s supportive stance. CNP also remains a significant contributor to CDC’s earnings, representing around 20% of its net income. Furthermore, we believe that CDC, or ultimately the French government, could provide capital or liquidity support to CNP if needed, giving the group strong financial flexibility. Indeed in 2012, CDC, as well as CNP’s other two key shareholders La Banque Postale and Group BPCE accepted a dividend in shares to help strengthen the capital position of its subsidiary.
The negative outlook reflects the challenging economic and financial conditions that could further prevent CNP from continuing to restore its capital adequacy.
We could lower the ratings if CNP’s trend of improving financial risk profile were to reverse. In particular, we believe this could occur if:
-- Our view of capitalization deteriorated. This could occur if there were a further weakening in our assessment of the credit strength of the peripheral European sovereigns.
-- Or, if the challenging operating conditions in France, with dampened growth prospects were to weaken CNP’s competitive position or lead to earnings falling short of our expectations.
We could assign a stable outlook if management actions led to the stabilization of CNP’s financial risk profile, in particular with capitalization improving to the higher end of the adequate range, whilst maintaining a strong competitive position in the French market.