S&P Global Ratings has upgraded its ratings for France-based insurer Covea Group, citing further improvements in the company’s capital adequacy and its leading competitive position within the regional P&C market.
The rating agency raised Covea’s long-term insurer financial strength and issuer credit ratings from ‘A+’ to ‘AA-‘ and kept the group’s outlook as stable.
Analysts felt stability would be supported by the group’s ability to withstand the potential negative effect of changing regulations and stiff competition in the French P&C market, thanks to strong brands, large scale, and client and product diversity.
Covea’s sustainable capital buffers and prudent underwriting and reserving policies should also help to mitigate volatility, they added.
S&P also believes that these policies have helped to boost Covea’s capital adequacy, alongside its mutual status, which facilitates capital accumulation in the absence of dividend requirements.
The group’s capital adequacy is therefore expected to remain excellent in the foreseeable future, even if it decides to undertake a sizeable acquisition.
In addition, S&P considers the contribution from Covea’s life business to be resilient even in a prolonged low-interest-rate environment, given its very low guaranteed minimum bonus rate.
In contrast, it views the group’s limited geographical diversification outside France as a limiting factor in comparison with some other ‘AA’ category rated insurance groups.
This limited geographical diversification means Covea is unlikely to receive a further potential ratings upgrade in the next two years, S&P said.
Ratings could however by lowered during this time, S&P warned, if the group’s operating performance were to deteriorate significantly compared to its peers, or if its capital adequacy was to deteriorate significantly.
