S&P downgrades Groupama IFS rating

The outlook for the France-based composite insurer is negative.

According to S&P, the downgrade reflects the rating agency's view that the rating action on the Greek sovereign will weaken Groupama's creditworthiness because of its material exposure to Greek government bonds.

In a statement, the ratings agency said: "We lowered the sovereign rating by one rating category, to the 'B' from the 'BB' rating category on May 9, 2011. According to our risk-based insurance capital model, this will significantly increase capital requirements for credit risks and in turn further weaken Groupama's capital adequacy. We therefore believe it is unlikely that Groupama's capital adequacy under our model will recover to the levels supportive of strong financial strength ratings in the next two years."

It continued: "In addition, we said in our rating action on Greece published on May 9, 2011, that our projections suggest that principal reductions of 50% or more could eventually be required to restore Greece's government debt burden to a sustainable level. We acknowledge that Groupama's use of the profit-loss sharing mechanism with policyholders could effectively mitigate life insurers' realised investment losses. However, we do not think these potential loss transfers to policyholders would be easily achievable, and therefore see a potential negative impact on the insurer's earnings.

"The negative outlook reflects continuing uncertainties we perceive about Groupama's magnitude and speed of improvement in operating performance and capital adequacy over the next two years."