S&P has cut Groupama's financial strength rating from A to A-

French composite insurer Groupama has played down the decision by rating agency Standard & Poor’s (S&P) to downgrade its financial strength rating last week, insisting that it is “business as usual”.

S&P cut Groupama’s rating from A to A-, citing falling earning prospects and the insurer’s capital adequacy.

“The current volatility in global financial markets has seen movements in the ratings of many of the world's largest financial institutions,” read a statement from Groupama. “The revised A- rating with a stable outlook from S&P is a clear indicator of its continuing strength, security and stability. The capital position and solvency at Groupama remains strong and the group expects there to be no impact on its business flow.”

S&P said that Groupama’s underwriting results are deteriorating, and it believed that the insurer’s constrained technical earnings would delay the restoration of capital adequacy to levels supportive of its previous ratings. It said that Groupama’s combined ratio increased to 107% in 2009 from 99% in 2008, mostly because of Windstorms Klaus and Quinten.

But it added that, without the storms, the ratio would still have been 103%. S&P blamed the increase on the property/casualty market’s downturn in France, coupled with fierce price competition and higher winter-related claims frequency.

The worsening claims environment in some countries where Groupama is present, particularly the UK and Romania, was also weakening the insurer’s operating performance.

S&P said the stable outlook on the new rating was down to Groupama’s strong business fundamentals in France, however, which it believes is likely to offset pressure on its financial profile.

The announcement coincided with press comments from chief executive Jean Azéma that the insurer was looking to float in two years to raise money for large-scale acquisitions.