DBRS Initiates Ratings Coverage of Credit Logement Assurance at AA (low), Stable

DBRS, Inc. (DBRS) has today initiated ratings coverage of Credit Logement Assurance S.A. (CL Assurance). CL Assurance is a small French insurance entity providing residential home loan insurance that is jointly-owned (60%), direct subsidiary of Credit Logement S.A. (CL or the Parent). DBRS has assigned an Issuer rating of AA (low) to CL Assurance. The trend is Stable.

DBRS rates CL’s Issuer Rating at AA with a Stable trend. DBRS views CL Assurance as a strategic component of CL’s franchise and, therefore, has assigned a support assessment of SA-1 to the subsidiary. The SA-1 designation implies strong and predictable support from the parent. As a supported rating with an SA-1 designation, CL Assurance’s rating will generally move in tandem with CL’s issuer rating.

The rating of CL Assurance, a jointly-owned direct subsidiary of CL, which is co-owned with some of CL’s own shareholders, BNP Paribas, Credit Lyonnais, Societe Generale, and also S.C.O.R., a French-based reinsurer, reflects its strategic role in CL’s overall strategy and DBRS’s expectation that CL has the resources and motivation to support CL Assurance, if needed. DBRS considers that CL is committed to supporting CL Assurance and this commitment is aligned with the interests of the other shareholders of CL Assurance. While small relative to CL as a whole, CL Assurance performs a key function in enabling CL to provide home loan insurance to meet the needs of a segment of its clients. Supporting this view on support is the Article L. 612-32 of the French Monetary and Financial Code (Code Monétaire et Financier), the French Autorité de Contrôle Prudentiel et de Résolution (ACPR) whereby the French regulators «may require any entity subject to its supervision to submit for its approval a recovery programme including all the measures required to restore or strengthen its financial situation or its liquidity ». In addition, although CL Assurance focuses on a niche market, DBRS considers that it carries the same level of commitment for CL, given the significant incentive that CL has to ensure that CL Assurance meets its obligations.

The one notch differential between CL Assurance’s long-term debt rating of AA (low) and CL’s long-term debt rating of AA reflects the risks associated with rating a non-bank subsidiary in the same country, in this case, France. DBRS rates the Republic of France at AAA with a Stable trend. Without parental support, CL Assurance’s ratings would be lower.

The rating is unlikely to see upward pressure in the medium-term, given the already high level of the rating and the need for CL, CL Assurance’s main parent, to continue to demonstrate the ability to maintain very strong capital levels. Downward rating pressure could emerge from lowered ratings among CL’s major shareholders or an unexpected deterioration in the French housing market that impacted CL’s rating.

Notes:

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (June 30, 2014). Other methodologies used include the DBRS Criteria: Support Assessment for Banks and Banking Organisations (January 24, 2014), the DBRS Criteria: Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities (Dec 9, 2014), and the Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (Aug 5, 2014). These can be found can be found at: http://www.dbrs.com/about/methodologies

The sources of information used for this rating include company documents. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Lead Analyst: Roger Lister
Rating Committee Chair: Alan G. Reid
Initial Rating Date: 15 October 2014
Most Recent Rating Update: 15 October 2014

For additional information on this rating, please refer to the linking document located at: http://www.dbrs.com/research/236983/banks-and-banking-organisations-linking-document.pdf

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com.