Fitch Ratings has assigned CNP Assurances SA's (Insurer Financial Strength (IFS) Rating A+/Stable) EUR500 million Tier 3 subordinated notes a 'BBB+' rating.

Key Rating Drivers

The notes are issued by CNP under its EUR7 billion euro medium-term note (EMTN) programme, and are being used for general corporate purposes. They have a seven-year maturity, and may be redeemed at any time from three months prior to the scheduled maturity date, subject to conditions on redemption and purchase. The notes have a fixed coupon of 1.25%.

The notes rank ahead of ordinary shares and Solvency II restricted tier 1 and tier 2 subordinated debt in the event of a winding-up, but behind senior creditors. The level of subordination results in our baseline assumption of 'below-average' recovery prospects.

The notes include a mandatory redemption deferral feature that would be triggered if the company is unable to meet its solvency capital requirements (SCR) or its minimum capital requirement (MCR). The notes also contain a mandatory interest deferral trigger based on a breach of the MCR. Fitch regards the mandatory redemption deferral feature as leading to 'moderate' non-performance risk.

We have therefore notched down the ratings twice from CNP's 'A' Issuer Default Rating (IDR), one notch for 'below average' recovery prospects and one notch for 'moderate' non-performance risk.

The notes qualify as tier 3 capital under Solvency II and are treated as 100% equity in Fitch's Prism Factor-Based Model, due to the application of the agency's regulatory override. However, given that these notes are a dated instrument, they are treated as 100% debt in Fitch's financial debt leverage calculation.

Fitch views the issue as positive for CNP's capitalisation, but marginally negative for financial leverage and fixed-charge coverage. We expect these metrics to remain commensurate with CNP's ratings in the medium term.

RATING SENSITIVITIES

The rating of the notes is subject to the same sensitivities that may affect CNP's IDR

Factors that could, individually or collectively, lead to positive rating action/upgrade:

The Prism FBM score remaining comfortably in the 'Very Strong' category in 2021, with financial performance being maintained at around current levels

Factors that could, individually or collectively, lead to negative rating action/downgrade:

The Prism FBM score deteriorating to the lower-end of the 'Strong' category, with limited prospects for recovery

Once the acquisition of CNP's remaining minority shareholding by La Banque Postale S.A. (LBP; A/Stable) is completed, a change in LBP's IDR could lead to a corresponding change in CNP's ratings.

Best/Worst Case Rating Scenario

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579

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