July 3, 2017 / 4:02 PM / 21 days ago

Fitch Places MutRe on Rating Watch Evolving

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(The following statement was released by the rating agency) LONDON, July 03 (Fitch) Fitch Ratings has placed MutRe's Insurer Financial Strength (IFS) Rating of 'A-' on Rating Watch Evolving (RWE). The RWE reflects heightened probability that the rating may be upgraded, downgraded or affirmed. Fitch understands from management that advanced discussions are taking place that could result in a change of MutRe's ownership structure, which could be positive for the company's credit profile. However, should the discussions not lead to a change in MutRe's ownership the rating is likely to be downgraded. This follows a decline in MutRe's revenue and profitability in 2016, as well as Fitch's expectation that the company's premiums and earnings are unlikely to recover sufficiently over the next two years. We also see uncertainties around MutRe's future strategic direction under this scenario. KEY RATING DRIVERS MutRe's capital is currently held by three groups of shareholders with 33.33% each: the French Federation of Health Mutual Insurers and other mutual companies which hold respectively 18% and 15.34% of MutRe's capital; SCOR Global Life, a core subsidiary of SCOR S.E. (AA-/Stable) and MATMUT, a multi-line mutual insurer operating in France. MutRe's current rating reflects standalone characteristics and does not rely on uplift from the ownership structure. The rating reflects MutRe's strong capital position and prudent reserving policies. Offsetting these factors are MutRe's small size, reduced premium income in 2015 and 2016 and low profitability. Rapid consolidation trend and concentration in the French mutual insurer sector following the introduction of Solvency II, as well as lower cessions linked to higher retention rates from mutual insurance companies, have added pressure to MutRe's revenue. This has resulted in premium income falling 24% since 2014, linked to the cancellation of two major contracts in 2016 and the consolidation of ceding companies with lower premiums ceded to MutRe. MutRe's net profit fell 38% in 2016, below Fitch's expectations, and return on equity decreased to 2.1% (2015: 3.5%). This decline, however, includes the impact of non-recurring items, such as litigations involving a ceding company and the tax authorities of France. Fitch expects MutRe's underlying profitability to improve in 2017. The rating remains constrained by the company's small size, limited diversification, and geographical concentration. These characteristics make MutRe more susceptible than larger companies to operational risks and to changes in the operating environment. Fitch views MutRe's capitalisation as strong and supportive of the insurer's rating. The company's regulatory Solvency II ratio was 134% in 2016 without transitional measures. This level is in line with Fitch's expectations and reflects higher capital charges (than under Solvency I) on underwriting risk for certain lines of business with a long duration. Fitch views MutRe's investment strategy as conservative, with the bulk of the insurer's assets invested in high quality fixed-income securities and cash. MutRe's asset allocation is stable over the long-term, and Fitch does not expect any material change in 2017-2018. Assets and liability management (ALM) is prudent, in Fitch's view. RATING SENSITIVITIES A change in MutRe's ownership could be positive for the ratings. The rating is likely to be downgraded if MutRe's ownership does not change, exposing MutRe to strategic uncertainties. Contact: Primary Analyst Federico Faccio Senior Director +44 203 3530 1394 Fitch Ratings Limited 30 North Colonnade E14 5GN London Secondary Analyst Louis Guintrange-Nonchez Associate Director + 33 144 299 176 Committee Chairperson Willem Loots Senior Director +44 20 3530 1808 Media Relations: Francoise Alos, Paris, Tel: +33 1 44 29 91 22, Email: francoise.alos@fitchratings.com; Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. Additional information is available on www.fitchratings.com In accordance with Fitch's policies the issuer appealed and provided additional information to Fitch that resulted in a rating action that is different from the original rating committee outcome. Applicable Criteria Insurance Rating Methodology (pub. 26 Apr 2017) here Additional Disclosures Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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