Coface CEO Jerome Cazes blames Standard and Poor's analysis models for the cause of downgrading from rank A to A-.

At the start of March, S&P lowered its counterparty credit and insurer financial strength ratings on French credit insurer Coface.

The core entities affected are Germany-based Coface Kreditversicherung and Finaz, Italy-based Coface Assicurazioni, US-based Coface North America and Austria-based Coface Austria Krediversicherung.

But Cazes thinks that the downgrading is unfair, he says: "We think that the analysis and model are wrong and that it is exactly the opposite of the present trend."

He adds: "We have an excess capital that has increased by 30% and our risk managed exposure has decreased by 30% between 2007 and 2009, It's not just Coface that will have problems when the number-one ratings agency is wrong."

This comes after Natixis’ denial at the end of February that the bank was planning on selling Coface to French reinsurer Scor.

Natixis has offered continued financial support to Coface through two consecutive capital injections of €50mn(US$67.8mn) in July 2009 and €175mn(US$237.3mn), planned for March 2010.

However, S&P now views Coface’s positioning within Natixis as non-strategic as opposed to strategically important, and that the outlook on all ratings is negative.

A spokesperson for S&P says: “Coface’s stand-alone creditworthiness remains good, but has worsened over the past two years. The ratings are based on our perception of its strong competitive position in the credit insurance market, as well as its strong and prudent investment strategy.”

They add: “Rating constraints are the company’s capital adequacy, which we consider to be weak, and the hurdles we think the company’s management will likely face to restore Coface’s weakened earnings.”

S&P suggests that Coface’s rating could sink lower if they do not see additional risk measures or rising of capital or earnings soon.

The spokesperson continues: “The negative outlook reflects the possibility that we could lower the ratings if Coface does not restore capital adequacy to a good level within one year. We could also consider a downgrade if Coface’s earnings heighten pressure on capital adequacy, either because Coface’s net combined ratio was above 145% in 2009 or is unlikely to recover to close to 100% in 2010. Similarly, we could lower the ratings if Natixis shows signs of diminishing financial support.”

However, S&P adds that Coface have a chance to return to their previous ratings. “We could consider a positive rating action if Coface’s capital adequacy recovers more quickly than we currently anticipate and the company’s earnings exceed our current expectations.”