Fitch Ratings has affirmed
Fitch has also affirmed
The affirmations reflect Coface's very strong company profile and capitalisation, as well as strong profitability through the cycle. The Stable Outlooks reflect our view that Coface continues to maintain sufficient rating headroom to weather rising corporate default risk in the current recessionary economic environment.
Key Rating Drivers
Very Strong Company Profile: Fitch ranks Coface's business profile as 'Favourable' compared with other global trade credit insurers due to its very strong, well established and diversified franchise in the global trade-credit insurance sector, where the group is the third-largest insurer, with an estimated 15% market share. We expect global economic slowdown to pressure revenue growth in the next 12-24 months. However, inflation is supportive of the company's growth in revenues, which are based on client turnover and therefore largely linked to inflation.
Very Strong Capitalisation: Fitch views Coface's capitalisation as 'Very Strong'. The Solvency II (S2) ratio was very strong at 192% at
Gross credit insurance risk exposure rose to an historical high of
Low Financial Leverage: The financial leverage ratio (FLR), from which we exclude factoring assets, was broadly stable at 16% at end-2021 (end-2020: 17%). We estimate the FLR will have increased to around 20% at end-3Q22 as a result of the September issuance. This level remains consistent with Fitch's 'aa' category rating guidelines.
Strong Financial Performance: Fitch views Coface's financial performance as 'Strong' across the economic cycle, underpinned by underwriting profitability, effective risk management and reinsurance. Coface demonstrated resilient financial performance, particularly during the pandemic. The Fitch-calculated return on equity and reported combined ratio (CR) averaged 6.9% and 77.7%, respectively, over the past five years.
Coface reported very strong earnings at end-2021 and end-9M22, driven by strong revenue growth and subdued loss activity. The net CR slightly improved to 63.8% at
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade is unlikely in the medium term, given Coface's smaller size and lower product diversification than higher-rated insurers
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A CR above 90% on a sustained basis
S2 ratio falling below 160% or net leverage increasing above 1.6x, both on a sustained basis
Deterioration in business profile, as reflected in a substantially weaker competitive position or higher business risks
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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