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TEXT-S&P puts Groupama Insurance on watch positive on sale news

Friday, 5 Oct 2012 | 6:27 AM ET

(The following statement was released by the rating agency)

Oct 05 - Overview

-- On Sept. 21, 2012, France-based Groupama S.A. (BB/Negative/--) announced that it has signed a definitive agreement with Ageas (UK) Ltd. regarding the sale of Groupama Insurance Co. Ltd. (Groupama UK) for a consideration of GBP116 million.

-- We are placing the 'BB' financial strength rating on Groupama UK on CreditWatch with positive implications, reflecting our view that after the acquisition, the ratings on Groupama UK will no longer be constrained by those on its current parent, Groupama S.A.

-- We expect to resolve the CreditWatch soon after the acquisition completes; this is expected to take place during the fourth quarter of 2012.

-- When we resolve the CreditWatch placement, we expect to rate Groupama UK on a stand-alone basis in the 'BBB' category.

Rating Action

On Oct. 5, 2012, Standard & Poor's Ratings Services placed Groupama Insurance Co. Ltd. (Groupama UK) on CreditWatch with positive implications.

Rationale

Groupama S.A., Groupama UK's parent, has agreed to sell the company's non-life insurance business to Ageas (UK) Ltd. (Ageas UK). The CreditWatch placement reflects our expectation that once the acquisition has officially completed the ratings on Groupama UK will no longer be constrained by those on Groupama S.A. (BB/Negative/--). Until completion, we understand that, based on regulatory restrictions and contractual arrangements, Groupama S.A. has limited ability to weaken the financial risk profile of Groupama UK, and little incentive to do so.

The ratings on Groupama UK reflect our view of its good stand-alone credit characteristics. These include its conservative investment portfolio, a good and improving operating performance, and a good competitive position. Partially offsetting these strengths are the long-term uncertainty surrounding the insurer's underperformance in its commercial motor and property accounts and Groupama UK's concentration in the very competitive U.K. motor insurance market, from which it derived 51% of its premiums in 2011.

Additionally, there is some uncertainty regarding the continuity of Groupama UK's broker relationships and commercial business given the recent financial pressures at Groupama S.A. and following the sale of part of the group's U.K. broking operations. Groupama UK and the U.K. broking arm operate as a distinct and independent business unit within the Groupama group. The September 2012 agreement that Groupama S.A. signed with Ageas UK covers the sale of the group's U.K. non-life insurance business but excludes the broking services.

CreditWatch

We expect to resolve our CreditWatch placement on approval of the acquisition by the U.K.'s Financial Services Authority. If the acquisition goes through, the rating on Groupama UK will be based on our assessment of its stand-alone financial and business characteristics. We currently expect to raise the ratings on Groupama UK to the 'BBB' category when the transaction completes. This is expected to take place during the fourth quarter of 2012.

In the event that the acquisition does not go through, we will resolve the CreditWatch placement and the ratings on Groupama UK will remain constrained by those on Groupama S.A.

Related Criteria And Research

All articles listed below are available on RatingsDirect on the Global Credit Portal.

-- Refined Methodology And Assumptions For Analyzing Insurer Capital Adequacy Using The Risk-Based Insurance Capital Model, June 7, 2010

-- Use Of CreditWatch And Outlooks, Sept. 14, 2009 -- Holding Company Analysis, June 11, 2009 -- Group Methodology, April 22, 2009 -- Interactive Ratings Methodology, April 22, 2009 -- Counterparty Credit Ratings And The Credit Framework, April 14, 2004 Ratings List Ratings Affirmed; CreditWatch/Outlook Action To From Groupama Insurance Co. Ltd. Financial Strength Rating BB/Watch Pos/-- BB/Negative/--

((Bangalore Ratings Team, Hotline: +91 80 4135 5898 satish.kb@thomsonreuters.com, Group id: BangaloreRatings@thomsonreuters.com, Reuters Messaging: satish.kb.thomsonreuters.com@reuters.net))