CNP Assurances : Major developments on the cards? of major developments

CNP Assurances reported a strong set of H1 2017 figures. Buoyed by the enhanced product mix and improved economic conditions, the pure insurance activities (personal risk and protection) were for the first time the primary contributors to the group's EBIT. The 2018 EBIT growth target of 5% was reiterated and the insurer is expected to pursue its momentum in improving its product mix and strengthening its capital levels. Apart from operating results, market attention is focused on the conclusion or development of two key issues: the renewal of distribution agreements in Brazil with CEF and possible changes to the shareholder agreement. - The timetables for negotiations on these two issues accelerated in late 2017/early 2018 whereas they were not expected until 2019. As a result, we are lowering our credit opinion to Stable vs. Positive given that the expected upgrade following operating results in line with S&P's requirements hinges on the conditions for renewal of the agreement in Brazil and of course on CDC's continued presence as top shareholder (which warrants an additional rating notch for CNP Assurances' long-term rating). As a result, whilst a one-notch downgrade cannot be advanced, the CDC's stake in CNP Assurances is key. We do not foresee a downgrade at this juncture and are confidently wagering on: 1/ CNP Assurances' long track record in Brazil to negotiate with the authorities and secure part of its revenues while developing direct-selling in Brazil; and 2/ CDC's resolve to protect its primary earnings contributor. For the quality of the group's credit fundamentals, we reiterate our Buy recommendation with a preference for the 2041/21, 2045/25 2047/27 and CMS. - >Support factors - - French leading life insurer with a solid 16% market share. Partnership agreements with shareholders La Banque Postale and BPCE allow CNP Assurances to take advantage of the biggest distribution networks in France.- A strong public shareholder base. The shareholder agreement between the CDC (34.6%), Sopassure (30.7%) and the French government (0.9%) has been renewed for two years. Including free float, the CDC controls 40.8% of the share capital, Sopassure 36.3% and the French government 1.1%. - A sharper focus on the multi-partner strategy with a view to geographical diversification and, more importantly, to gear the portfolio towards more lucrative insurance products. In France with BPCE (2022) and La Banque Postale (2025) but also with Klésia, Malakoff Médéric and La Mondiale; in Italy with UniCredit; in Europe with Santander Consumer Finance and in Brazil with Caixa Seguridade. Partnerships with start-ups and digital innovation round out the offer. - CNP Assurances has flexibility to ride out a protracted low interest-rate environment given an average guaranteed yield of 0.49% on its portfolios and a regularly topped up policyholders' surplus reserve of € 9bn. - a high solvency margin of 190%, calculated using the standard formula, without transitional measures. The group also has issuance capacity to boost the margin. Points to watch - - Possible changes in the ownership structure over the next two years. - The renewal of the exclusive distribution partnership in Brazil is expected in the near term. Uncertainty still hangs over the size of the new business scope, its profitability and the cost for CNP Assurances. - Developments in the life insurance market in France with the proposals of the Pacte law on Eurocroissance or enhanced life insurance, and the consequences of the amendments to creditor insurance.