S&P Revises Outlook on Credit Insurer Coface to Negative

December 22, 2009

Standard & Poor’s Ratings Services said today that it has revised its outlook on the core operating entities of French credit insurance group Coface to negative from stable. The core entities are:
— France-based Coface S.A.,
— Germany-based Coface Kreditversicherung AG,
— Italy-based Coface Assicurazioni SpA,
— U.S.-based Coface North America Insurance Co.,
— Austria-based Coface Austria Kreditversicherung AG and,
— Germany-based Coface Finanz GmbH.

S&P also affirmed the ‘A’ long-term counterparty credit and insurer financial strength ratings on Coface and the ‘A-1’ short-term ratings on Coface Kreditversicherung AG and Coface Finanz GmbH, and removed the long-term counterparty credit and insurer financial strength ratings from CreditWatch, where they were placed with negative implications on Dec. 10, 2009.

“The outlook revision reflects our view that Coface’s capital adequacy has deteriorated in 2009 from already weak levels,” explained credit analyst Marie-Aude Salinas. S&P said it also factors in the challenges we believe the company will face in restoring its capital adequacy, despite a €175 million [$250 million] capital injection by parent Natixis S.A. to levels more commensurate with the current ratings.”

Salinas added: “The negative outlook reflects our expectations that we could lower the ratings if Coface does not restore capital adequacy to a ‘good’ level within one year, as measured by Standard & Poor’s risk-based insurance model without our 1.25 stress weighting, either through additional risk measures, additional capital raising, or earnings.”

S&P also noted that it would “consider a downgrade if Coface’s earnings exacerbate pressure on capital adequacy, either because the insurer’s net combined ratio is above 145 percent in 2009 or is unlikely to recover close to 100 percent in 2010. Similarly, we could lower the ratings if the parent shows signs of diminishing support to Coface.

“Conversely, we could consider a positive rating action if Coface’s capital adequacy recovers more quickly than we currently expect and its earnings exceed our earnings expectation.”

Source: Standard & Poor’s – www.standardandpoors.com

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