The ratings of French insurers are unaffected by the recent revision of the Outlook on France to Negative, Fitch Ratings says, with the exception of CNP Assurances SA (Insurer Financial Strength rating: A+/Negative).
CNP’s outlook change reflects a similar adjustment for La Banque Postale S.A. (LBP), as CNP plays a critical role within LBP, forming a substantial public financial entity that shapes Fitch’s rating assessment for CNP.
Our assessment of the Industry Profile and Operating Environment (IPOE) range of French insurance is unchanged at ‘aa+ to a-’, with a stable IPOE outlook, despite the sovereign Outlook revision.
However, increasing political, fiscal and macro-economic uncertainties could exert negative pressure on our assessment. The risks to French insurers’ operating environment include adverse legislative or regulatory changes affecting consumer and investor confidence, which then affect the sector’s business volumes, flows and profits.
Fiscal consolidation and its potential negative effect on growth and consumer and investor sentiment could hit top-line growth for life and P&C insurers but should not materially affect their competitive positioning.
We view health and protection insurers are more exposed to adverse regulatory changes in connection with the deficit-cutting budget, as it may pressure their business risk profiles and their underwriting results.
French insurers are directly exposed to sovereign risk through their investments in French sovereign bonds. However, we would not expect our scoring of investment and asset risk to be meaningfully affected if France’s rating were downgraded by one notch.
This is because French insurers have lower sovereign bond exposure than some European peers, and their investment and asset risk scores are generally no higher than ‘a+’ to reflect a higher equity exposure.
Insurers’ exposure to sovereign debt is also measured through Fitch’s sovereign investments/capital ratio, but the ratio is neutral to our assessment of investment and asset risks for our French insurance peer group.
Any negative impact on valuations from spread increases is largely balanced by lower interest rates, and a low duration gap across most French insurers helps to mitigate near-term volatility.