OREANDA-NEWS. August 03, 2015. Fitch Ratings has affirmed MutRe's Insurer Financial Strength (IFS) rating at 'A-' with a Stable Outlook.

MutRe's IFS rating is not affected by Fitch's updated insurance notching criteria published on 14 July 2015. The updated notching criteria appear in Section VI of the insurance master criteria report "Insurance Rating Methodology".

KEY RATING DRIVERS
The affirmation reflects MutRe's strong capital position, the financial flexibility provided by its committed shareholder base, its consistent strategy and its solid franchise in the French accident and health reinsurance market. The rating remains constrained by the company's small size and geographical concentration. Fitch believes that MutRe's size makes it more susceptible than larger companies to operational risks and changes in the external operating environment.

Fitch considers MutRe's capital adequacy as strong, based on the agency's own internal risk-based assessment and on the regulatory solvency ratios. At end-2014, MutRe's Prism factor-based model (Prism FBM) score was 'Very Strong' and the regulatory Solvency I ratio was 224% (2013: 230%). However, Fitch expects MutRe's Solvency II ratio to be significantly lower than Solvency I ratio.

Fitch believes that MutRe's three shareholders would provide additional financial support should the need arise, and this gives the company a degree of financial flexibility, which the agency views positively.

In 2014, MutRe reported a net profit of EUR1.3m, down from EUR6m in 2014. This material decline is explained mainly by the negative impact of low interest rates on net long-term care provisions and, to a lesser extent, by a EUR5.2m exceptional loss (2013: EUR7.2m exceptional gain). Fitch expects MutRe's net profit to improve in 2015, driven by stable underwriting performance and the absence of negative one-offs.

Fitch considers MutRe's asset allocation as conservative, with high-quality fixed-income assets accounting for most of the reinsurer's investments. Moreover, Fitch considers MutRe's liquidity to be strong, supported by highly rated bonds, although a high proportion of the total assets are represented by funds withheld by cedants.

In the light of Solvency II and the rapid concentration and consolidation trend in the French mutual insurers sector, MutRe has launched its 2015-2019 strategic plan, which the agency views positively, albeit neutral for the rating.

RATING SENSITIVITIES
Key ratings triggers for a downgrade include a failure to maintain profitability (as measured, for example, by the three-year average combined ratio failing to stay below 105% (2014: 102%) or a sustained decline of the Prism FBM score to below 'Very Strong'. In addition, MutRe's rating could be downgraded if the company were unable to renew contracts and maintain its franchise.

An upgrade is unlikely in the medium term, given the financial and business profile of the company, in particular its size and lack of significant diversification.