Fitch Affirms Coface's IFS Rating at 'AA-'; Outlook Stable

About this update from Coface Sa

Fitch Ratings has affirmed Coface SA operating entities' (together Coface) Insurer Financial Strength (IFS) Ratings at 'AA-' (Very Strong). Fitch has also affirmed Coface's Long-Term Issuer Default Rating (IDR) at 'A+'. The Outlooks are Stable. A full list of rating actions is below. The affirmations reflect Coface's very strong company profile and capitalisation, plus strong profitability through the cycle. The Stable Outlooks reflect our view that Coface will maintain sufficient rating headroom to withstand weaker macro-economic conditions and rising corporate default risk over the next 12-24 months. Key Rating Drivers Leading Franchise: Coface is a specialist insurer with a very strong, established and geographically diversified franchise in global trade credit insurance, with an estimated 15% market share, making it the third largest provider worldwide. Factoring, information services and other fee-based activities (19% of revenue at end-1H25) enhance business diversification and support earnings resilience. Very Strong Capitalisation: Coface's very strong capitalisation is underlined by a Solvency II (S2) ratio of 195% at end-1H25 (196% at end-2024), above the group's stated comfort zone of 155%-175%. Net leverage was 1.0x at end-2024 (2023: 1.1x), supported by a moderate increase in sales and a stable capital base. We expect net leverage to remain broadly stable in 2025. The financial leverage ratio (FLR) was stable at 21% at end-1H25 versus end-2024, and we expect it to remain broadly stable over the next 12-24 months. We also view sources of funding for the factoring business as robust and well diversified, mitigating liquidity risk for that segment. Historically High Insured Exposure: Gross credit insurance exposure reached a record EUR719 billion at end-1H25, broadly in line with market growth. This reflects strong post-pandemic recovery trends that are now moderating due to increased protectionism and softer global trade volumes. Exposure remains well diversified by debtor sector and geography, with Germany , the US, France and Italy together accounting for about 41% of exposure. We expect nominal exposure growth to soften due to the macro backdrop and Coface's continued underwriting discipline. Underwriting Discipline Maintained: Coface has maintained underwriting discipline despite higher insured exposure, as reflected by timely, selective limit reductions and sector rotation. The group is accelerating prevention measures to preserve portfolio quality as global insolvencies rise in a tougher operating environment, which support its credit profile. Strong Financial Performance: Performance through the cycle is underpinned by underwriting profitability, effective risk management and reinsurance. Earnings in 1H25 remained strong, with a net combined ratio (CR) of 71.3% (1H24: 63.4%). The year-on-year increase reflects a 5.1pp rise in the loss ratio to 40.1% and a 2.9pp increase in the net expense ratio, the latter driven by continued investment in strategic information services. The higher loss ratio is consistent with our expectation that the CR will trend back toward its through-the-cycle average as the credit cycle tightens, with increased claims from more bankruptcies due to increased financing costs and sluggish growth. In 2024 Fitch-calculated return on equity (ROE) and reported CR were 12% and 78%, respectively, broadly stable compared with 2023. We incorporate the inherent earnings volatility of credit insurance into our assessment of financial performance. Normalising CR: We expect the reported CR to normalise toward Coface's through-the-cycle target of 78% over the next 12-24 months (2Q25: 74%), reflecting rising claims activity as the credit cycle tightens with more bankruptcies, driven by higher financing costs and weaker economic growth. Short-Term Ratings: Coface's short-term debt rating is 'F1', the standard level corresponding to the Long-Term IDR of 'A+'. The Short-Term IFS Rating of Compagnie Francaise d'Assurance pour le Commerce Exterieur SA , the group's main operating entity, is 'F1+', which is standard for the Long-Term IFS Rating of 'AA-'. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade A sharp, sustained deterioration in the CR or net income, revealing larger-than-expected underwriting losses and credit risk vulnerabilities in the insured or factoring portfolios The S2 ratio falling below 160% or net leverage increasing above 1.6x, both on a sustained basis Deterioration in the business profile, as reflected in a substantially weaker competitive position or higher business risks 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'. 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 The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' 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. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores . (C) 2025 Electronic News Publishing, source ENP Newswire

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