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Fitch Affirms Coface's IFS at 'AA-'; Outlook Stable
September 8, 2017 / 10:26 AM / 3 months ago

Fitch Affirms Coface's IFS at 'AA-'; Outlook Stable

(The following statement was released by the rating agency) LONDON, September 08 (Fitch) Fitch Ratings has affirmed the Insurer Financial Strength (IFS) ratings of Compagnie francaise d'assurance pour le commerce exterieur (Coface France), Coface North America Insurance Company and Coface Re SA at 'AA-'. The issuers are the major insurance operating entities in the Coface group (Coface). Fitch has also affirmed Coface France's Long-Term Issuer Default Rating (IDR) at 'A+' and COFACE SA's Long-Term IDR at 'A+' and Short-Term IDR at 'F1'. COFACE SA is the top holding company of the group. The Outlooks on the IFS ratings and IDRs are Stable. A full list of rating actions is at the end of this commentary. KEY RATING DRIVERS The ratings reflect Coface's very strong business profile in credit insurance, very strong 'capitalisation and leverage' and strong profitability, although earnings were hit by adverse claims experience in 2016. Coface is the third-largest credit insurer worldwide. The group holds an estimated 16% market share in the credit insurance industry, and operates in 67 countries and multiple economic sectors. As a specialist insurer, Coface has limited diversification by product range, but it has a strong franchise in credit insurance with a high level of geographical diversification. Fitch views Coface's capitalisation as solid and the insurer's risk management framework as robust. This view is based on Coface's moderate multiple of nominal net credit exposure to equity and appropriate reserving, as well as its Solvency II position. At end-June 2017, Coface's group Solvency II ratio was 148% (end-2016: 150%), within the company's target of 140%-160%. Operating leverage (net premium written to equity) also was strong at 0.3x in 2016. The Fitch-calculated financial leverage ratio (FLR), which excludes factoring business, was 18% at end-2016, unchanged from 2015. The ratio is in line with Fitch's 'AA' criteria median guidelines. We do not expect Coface to raise additional financial debt over the medium term. Coface's total financing and commitments (TFC) ratio (a measure of debt and debt-like obligations), was high at 1.6x (end-2015: 1.6x). The level of the TFC ratio reflects the funding of the factoring business. Profitability in 2016 was hit by adverse claims experience caused by the economic downturn in certain geographies, in particular South America and Asia, where Coface has leading market positions. Weaker client activity and soft conditions in mature markets also weighed on profits, with the net combined ratio deteriorating to 97.4% (2015: 83.1%) and Fitch-calculated return on equity (ROE) falling to 2.4% from 7.3%. However, the net combined ratio improved to 93.7% in 1H17 and Fitch expects Coface's management actions to have a positive impact on profitability in 2017. Coface launched a new strategic plan in 2016, named 'Fit to Win', which aims to enhance the company's financial performance through three transformation drivers over three years: reinforcement of risk management, improvement of operational efficiency and prioritisation of value over growth. Fitch views this plan positively and believes Coface is on track to achieve its 2019 targets. Fitch considers Coface has adequate access to external funding, in the form of operating debt, commitments received from banks and the contingent equity line that Coface put in place in February 2016 to protect its Solvency II position. Coface maintains a prudent investment strategy, holding a large portion of its assets in cash to meet short-term obligations and to limit investment risk. Coface's bond portfolio is diversified by geography, reflecting its business mix. RATING SENSITIVITIES The ratings could be downgraded if Coface's net premiums written-to-equity ratio increases to 1.1x or the FLR increases to 25%. The ratings could also be downgraded if the combined ratio increases to above 100% or the Fitch-calculated ROE remains below 5%, over a sustained period. An upgrade is unlikely in the medium term, given Coface's size and level of product diversification compared with higher rated insurers. FULL LIST OF RATING ACTIONS COFACE SA: Long-Term IDR affirmed at 'A+'; Outlook Stable Short-Term IDR affirmed at 'F1' Commercial paper affirmed at 'F1' Subordinated debt affirmed at A- Compagnie francaise d'assurance pour le commerce exterieur (Coface France): IFS affirmed at 'AA-'; Outlook Stable Long-Term IDR affirmed at 'A+'; Outlook Stable Short-Term IFS affirmed at 'F1+' Coface North America Insurance Company: IFS affirmed at 'AA-'; Outlook Stable Coface Finanz GmbH: Long-Term IDR affirmed at 'A+'; Outlook Stable Coface Re SA: IFS affirmed at 'AA-'; Outlook Stable Contact: Primary Analyst Federico Faccio Senior Director +44 20 3530 1394 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Willem Loots Senior Director +44 203 530 1808 Committee Chairperson Harish Gohil Managing Director +44 20 3530 1257 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Insurance Rating Methodology (pub. 26 Apr 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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