Posted on Jun 27, 2012 by Sergio Ulloa
French insurance company Groupama recently endured a downgrade in ratings by S&P from a BBB to a BB-. Its new rating is considered sub-investment, and is commonly referred to as 'junk' status. Such a rating could potentially harm existing business relations with insurance brokers.
Groupama is a mutual insurance, banking and financial services group with over 38,000 employees and 16 million customers and members. It was founded over one century ago, and suffered some of the largest setbacks from Greek soverign debt and stock market investments, with a EURO1.8 billion (USD2.25 billion) net loss in 2011. These losses caused Groupama to lose its position as France's 5th
largest insurer and Europe's 15th
largest by premiums. As a whole, Groupama has EURO5.3 billion (USD 6.62 billion) in net assets, and EURO17.2 billion (USD21.5 billion) in revenues.
The French company maintains a leading presence in France within a number of insurance lines ranging from agriculture, personal health, and home, to motor. It also has a strong international footing in 14 countries in Europe and Asia, including: China, Vietnam, Greece, Turkey, Hungary, Romania, Slovakia, Bulgaria, Poland, Great Britain, Portugal, Italy, and Spain.
Currently, Groupama's ratings are on on negative outlook, meaning that unless the company's conditions improve in the coming year, further cuts to ratings are possible.
S&P stated that management actions taken towards asset sales were "unlikely to restore Groupama's capital adequacy to levels supportive of an investment-grade rating over the coming year, in our view."
Some of the actions taken include the sales its Spanish operations to Grupo Catalana Occidente for EURO405.5 million (USD 506.7 million). Groupama Espana generates 38 percent of it's total premiums, EURO904 million (USD1.13 billion) annually, from motor insurance.
Groupama has also sold the property and casualty assets of its Gan Eurocourtage brokerage business to Allianz's French unit, and is considering the sale of its UK assets. Though Groupama UK's capital is separate from its parent company, with twice the recommended solvency margin at 218 percent, its rating is not. It's UK assets include the insurance company, as well as insurance brokers Bollington, Lark, and Carol Nas.
Francois-Xavier Boisseau, the Groupama UK chief executive also added his opinion on the matter. Boisseau emphasized possible misconceptions that may arise from the UK subsidiary's rating in association with it's parent, Groupama.
"This is important to understand because based on our current performance, prospects and asset base, it is very clear that the Group's rating does not offer an accurate reflcetion of our excellent trading position in the UK nor of the level of security we offer to our broker partners and their clients," he said, "In 2011 we delivered record profits and despite fierce competition our 2012 reveneues remain broadly in line with expectations. Our profitability also remains very impressive. Profit before tax exceed EURO16 million (USD20 million) at the end of May and our combined ratio improved to 97.9 percent."
On the other hand, Chief executive Ashwin Mistry of Brokerbility, a group of high quality independent brokers, said that Groupama's downgrading will initiate a complete review of the "whole relationship" between the two.
Insurance broker Seventeen Group has also taken the matter very seriously, and for them, Groupama is already beyond reliability. Paul Anscombe, managing director of SG, said "If an insurer's rating is below BBB+ from Standard & Poor's we will not deal with them going forward."
From a lighter perspective, Bluefin chief executive Stuart Reid said that "Groupama has been a good business to us and a good friend." The drop in ratings is definitely an issue to look into and consider with utmost importance, but Reid affirmed that his firm will continue to support Groupama.
Overall reactions to Groupama's predicament are mixed, but nevertheless, all groups affiliated with them are taking the necessary precautions to ensure that Groupama does not pose unnecessary risk in the near future.
Insurance Companies Mentioned
Groupama is a mutual insurance, banking, and financial services group. Over 100 years ago, Groupama began as an agricultural mutual insurer, and has grown and adapted to emerging economic challenges, as well as to the needs of its members.