Fitch Ratings, a financial analysis and credit rating agency, reports that the political uncertainty in France, stemming from President Emmanuel Macron’s call for an early parliamentary election, has not impacted the ratings of French insurers.
Although a potential increase in sovereign-related risks might challenge certain factors influencing insurers’ ratings, most insurers are anticipated to withstand the impact due to their solid business profiles and strong capitalisation.
Fitch has also stated earlier that there are no immediate effects on France’s ‘AA-’/Stable rating.
Most French insurers’ ratings are robust enough to withstand a significant increase in sovereign-related risks, including a potential sovereign downgrade. Fitch’s Insurance Rating Criteria do not impose a strict sovereign rating cap on insurers’ ratings.
Nonetheless, shifts in sovereign ratings can impact an insurer’s Industry Profile and Operating Environment (IPOE) range, business profile, and the evaluation of investment and asset risks.
For instance, if the French sovereign rating were hypothetically lowered by one notch, it would likely put downward pressure on our evaluation of the IPOE range for the French insurance sector.
However, our assessment of asset and investment risk would probably stay mostly unchanged. In this scenario, we expect that the ratings of most French insurers would remain steady, although some might face tighter rating margins.
CNP Assurances (Insurer Financial Strength rating: A+/Stable) stands out due to its heightened sensitivity to the sovereign rating level, influenced by its public ownership through La Banque Postale (Issuer Default Rating: A/Stable).
The IPOE range of the French insurance sector is influenced by France’s sovereign rating but does not necessarily move in lockstep with it.
However, Fitch may decrease the IPOE range if it deems that a deteriorating operational environment due to heightened sovereign risk justifies such an adjustment.
A lower IPOE could stem from increased macroeconomic uncertainties significantly impacting business volumes, net inflows, and profitability in the French insurance market.
If the IPOE range were lowered by one notch, the evaluation of certain insurers’ company profiles, which are tied to the IPOE, might also be downgraded.
While most insurers are expected to have sufficient rating flexibility to absorb this change, a few ratings could potentially face pressure.
A hypothetical one-notch downgrade of France’s rating is unlikely to significantly impact our assessment of their investment and asset risks.
Compared to European peers, French insurers have typically maintained higher equity and lower sovereign bond exposures, keeping their investment and asset risk scores generally below ‘a+’.
Fitch measures insurers’ sovereign debt exposure with the sovereign investments/capital ratio, which was below 2x for our French insurance peer group by the end of 2023, indicating relatively low exposure by European standards.
