French insurers’ ratings unaffected by France’s negative outlook revision, says Fitch

The recent negative outlook revision for France does not impact the ratings of French insurers, except for CNP Assurances SA, which has also had its outlook revised to negative, according to Fitch Ratings.

CNP’s revised outlook aligns with a similar action taken for La Banque Postale S.A. (LBP), as CNP is a key part of LBP, forming a significant public financial group that influences Fitch’s assessment of CNP’s ratings.

Despite the sovereign outlook revision, Fitch maintains its assessment of the IPOE range for French insurance at ‘aa+ to a-’, with a stable outlook. However, growing political, fiscal, and macro-economic uncertainties could negatively affect this assessment. Risks to the operating environment for French insurers include potential legislative or regulatory changes that could undermine consumer and investor confidence, ultimately impacting business volumes, flows and profits.

Fitch considers health and protection insurers particularly vulnerable to adverse regulatory changes linked to budget cuts, which could affect their business risk profiles and underwriting results.

Fiscal consolidation and its potential negative impact on growth and consumer and investor sentiment could hinder top-line growth for life and property and casualty insurers. However, this is not expected to significantly harm their competitive position.

French insurers are directly exposed to sovereign risk through their investments in French sovereign bonds. Nonetheless, Fitch does not anticipate that a one-notch downgrade of France’s rating would meaningfully affect its assessment of investment and asset risks. This is because French insurers have lower sovereign bond exposure compared to some European peers, and their investment and asset risk scores are generally rated no higher than ‘a+’, reflecting a higher equity exposure. Insurers’ exposure to sovereign debt is also evaluated through Fitch’s sovereign investments/capital ratio, which is neutral to its assessment of investment and asset risks for its French insurance peer group.

Fitch also noted that insurers’ sensitivity disclosures suggest that widening sovereign spreads would have a limited impact on capitalization. Any negative effects from spread widening on valuations are largely offset by lower interest rates, while a low duration gap for most French insurers helps mitigate near-term volatility.

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