TEXT-Fitch:outlook for French life insurance sector remains negative

(The following statement was released by the rating agency)

Oct 02 - Fitch Ratings says its rating outlook for the French life insurance sector remains negative. A negative sector outlook indicates that the agency believes that a material portion of life insurer ratings could be downgraded as they are reviewed over the next 12-24 months.

The French life sector has shown some deterioration in 2011-2012 due to the challenging interest rate environment and unfavourable business mix, which will continue to penalise life insurers' profitability and solvency.

Fitch expects net collections (i.e. premiums - claims paid - surrenders) to remain negative in 2012-2013 due to lower premiums and higher lapses, which indicates that the market is becoming increasingly mature.

The margins on euro-denominated products are weak, mainly due to the low interest rate environment, which should lead the majority of life insurers to further reduce returns offered to policyholders. The business mix is becoming unfavourable, as financial market volatility is putting pressure on sales of unit-linked policies, which typically generate high margins in France.

Capital adequacy is also being affected by unfavourable trends in Southern European government bonds, although exposure is not spread equally over the sector.

The rating outlook could be revised to stable if higher asset returns, especially interest rate, would allow insurers to rebuild margins and, as such, possibly improve retained earnings.

As part of its forthcoming series of insurance roadshows, Fitch will be in Paris on 3 October 2012. Marc-Philippe Juilliard, Senior Director in Fitch's insurance team, will speak on French life and non-life insurance, and there will be presentations on European life insurance, reinsurance and the impact of the eurozone crisis on insurers hosted by senior members of Fitch's insurance team.

The report "2013 Outlook: French Life Insurance " is available at . Link to Fitch Ratings' Report: 2013 Outlook: French Life Insurance

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