French insurers' ratings remain stable amid political uncertainty

The heightened political uncertainty in France created by President Emmanuel Macron’s decision to call a snap parliamentary election has not affected French insurers’ ratings, Fitch Ratings says.

A potential increase in sovereign-related risks could put pressure on some factors that affect insurers’ ratings, but most insurers should have sufficient rating headroom to absorb the impact given their strong business profiles and capitalisation.

Fitch have previously stated that there are no immediate implications for France’s ‘AA-’/Stable rating. French insurers’ ratings remain resilient despite current political uncertainties

Fitch’s Insurance Rating Criteria do not impose a sovereign rating cap on insurers, but changes in sovereign ratings can influence an insurer’s Industry Profile and Operating Environment (IPOE) range, business profile, and assessment of investment and asset risks.

French insurers' rating

For example, a hypothetical one-notch downgrade of France’s sovereign rating would negatively impact the IPOE range assessment for the French insurance sector.

The evaluation of asset and investment risk would likely remain stable. In such a situation, most French insurers’ ratings would remain unaffected, though some might experience reduced rating headroom.

CNP Assurances (Insurer Financial Strength rating: A+/Stable) is an exception, showing higher sensitivity due to its public ownership through La Banque Postale (Issuer Default Rating: A/Stable).

The French insurance sector’s IPOE range is influenced by France’s sovereign rating but does not automatically follow its movements.

Fitch may lower the IPOE range if increased sovereign risk weakens the operating environment. This could result from macroeconomic uncertainties impacting business volumes, net inflows, and profits in the French insurance market.

French insurers' rating

A one-notch reduction in the IPOE range could lower the company profiles of some insurers linked to the IPOE. While most insurers have sufficient rating headroom to counteract this, a few ratings might face pressure.

French insurers are directly exposed to sovereign risk through their investments in French sovereign bonds.

However, under a hypothetical scenario where France’s rating is downgraded by one notch, we would not expect our scoring of investment and asset risk to be meaningfully affected.

This is because French insurers typically have higher equity and lower sovereign bond exposure than European peers, and their investment and asset risk scores are generally no higher than ‘a+’.

Insurers’ exposure to sovereign debt is measured through Fitch’s sovereign investments/capital ratio. For French insurance peer group, the ratio was below 2x at end-2023, which is low by European standards.

Nataly Kramer   by Nataly Kramer