Best Downgrades Rating for Groupama S.A.

December 16, 2004

A.M. Best Co. has downgraded the financial strength rating to A (Excellent) from A+ (Superior) of Groupama S.A. (Groupama) (France).

At the same time, A.M. Best has assigned an issuer credit rating (ICR) of “a” to Groupama. A.M. Best has also assigned a rating of “bbb+” to the 30-year EUR 750 million subordinated notes, originally issued by the Central Mutual (CCAMA) in July 1999 but assumed by Groupama in December 2003. The outlook on all ratings is stable.

Groupama is the internal reinsurer of the Groupama group and consolidates all operating entities, including the regional mutuals which are the ultimate owners of Groupama.

The ratings reflect the weak performance of Groupama’s consolidated non-life operations, leading to pressures on the consolidated risk-adjusted capitalization, partially offset by stronger life earnings. The ratings also factor Groupama’s leading business position in France.

Despite A.M. Best’s expectation that Groupama’s consolidated earnings are likely to improve by approximately EUR 145 million (USD 194 million) to EUR 300 million (USD 402 million), non-life earnings are insufficient at this stage in the underwriting cycle. Groupama’s consolidated combined ratio remains high (105.3% at year-end 2003), and A.M. Best expects that it will remain above 100% at year-end 2004 despite some improvement in underwriting performance and expense savings.

Beyond 2004, as rates soften, A.M. Best believes that Groupama is likely unable to sustain this improvement. Life earnings will continue to strongly contribute to overall pre-tax earnings but at a lower level (approximately EUR 200 million (USD 268 million)) despite improving investment returns due to the costs associated with a growing life book of business, including competitive market pressures.

The expected growth of Groupama’s life business, combined with weak earnings from non-life, is likely to put further pressure on the company’s consolidated risk-adjusted capitalization. This could be offset with the proceeds of a planned IPO (initial public offering), but there is no certainty regarding its timeframe.

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