OREANDA-NEWS. Fitch Ratings has revised CAMCA Assurance's (CAA) and CAMCA Reassurance's (CAR) Outlooks to Positive from Stable, while affirming their Insurer Financial Strength (IFS) ratings at 'A' and Issuer Default Ratings (IDR) at 'A-'.

Both companies are domiciled in the Grand Duchy of Luxembourg and are owned, directly and indirectly, by Credit Agricole's (CA; A/Positive) 39 regional banks.

KEY RATING DRIVERS
The Positive Outlook on both companies is directly linked to that on CA group. The affirmation reflects the companies' high degree of integration within the CA group, given their role in insuring the group's guaranteed housing loans. Both companies are reliant on the group for their role, business position and strategic direction. Their ratings are therefore mainly driven by CA's ratings. Fitch expects that CA's regional banks would provide support to their insurance subsidiaries, if needed.

CAA's premiums grew 64% in 2015 following sharp growth in the insurer's core business line - guarantees of housing loans. The line accounted for 93% of CAA's premiums in 2015 (2014: 88%). Additionally, CAA has outperformed the growth of CA's housing loan book and increased its penetration rate in the loan book to 35% in 2015 from 31% in 2014. This growth was supported by both an increase in the average value of an insured housing loan and also an increase in the number of insured loans. This resulted from sharp growth of domestic housing loans in 2015, driven mainly by loan refinancing as borrowers took advantage of the low interest rate environment.

Fitch expects the supply of new housing loans in France in 2016 to be lower than in 2015, due to a slowdown in loan refinancing, which may lead to a decrease in written premiums for CAA. CAR's gross written premiums increased to EUR57m in 2015 from EUR47m in 2014 following the increase in CAA's business volumes.

Fitch considers CAA's and CAR's credit profiles sound, as evidenced by low defaults on their guaranteed insurance business for housing loans. CAA's net combined ratio strengthened to 83.5% in 2015 (2014: 89.5%; five-year average: 81.9%), which was mainly supported by a lower loss ratio. CAA reported a solid net profit of EUR15m in 2015. CAR reported a net loss before allocation to the equalisation reserve of EUR21m in 2015 compared with a net profit of EUR23m in 2014.

In accordance with Fitch's expectations the new Solvency-II regime has had a positive impact on both CAA's and CAR's solvency ratios and available capital. Being domiciled in Luxembourg, which allows the setting aside of significant reserves and the build-up of a capital buffer, has allowed both insurers to comply with regulatory requirements. In addition, under Solvency 2 the equalisation reserve is treated as equity in the statutory solvency calculation.

Both CAA and CAR are compliant with the Solvency-II regime with a significant cushion. Solvency-II ratios stood at 195% for CAA (Solvency-I ratio at 308% at end-2015) and at 987% for CAR (Solvency-I ratio at 99.5% at end-2015) as at 1 January 2016.

Fitch views the investment policy of both insurers as cautious, investing only in high-quality assets. Both companies focus on French, German and Luxembourg bonds. CAA is mostly invested in fixed-income securities (93% of total investments at end-2015), including 79% in bonds rated in the 'AAA' and 'AA' categories. The net investment yield on CAA's bond investments was 2.5% in 2015 (2014: 3.7%). CAR follows the same investment strategy as CAA.

RATING SENSITIVITIES
Changes to CA's ratings will be reflected in CAA's and CAR's ratings. Material deterioration in the prospect of support for these companies from their parent could also lead to a downgrade.