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Rating Action:

Moody's assigns a Baa3(hyb) rating to CNP's proposed perpetual restricted Tier 1 Notes

14 Jun 2018

London, 14 June 2018 -- Moody's Investors Service has today assigned a Baa3(hyb) rating to the proposed perpetual restricted Tier 1 notes to be issued by CNP Assurances (A1 insurance financial strength rating, stable outlook). The rating is based on the expectation that there will be no material difference between current and final documentation in relation to the notes.

The proposed notes will be partially or fully written down if the group's solvency ratio breaches certain triggers. Moody's approach to rating such "high trigger" contingent capital securities is described in its cross-sector insurance rating methodology Assigning Instrument Ratings for Insurers (https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1093824).

At the same time, Moody's assigned an A3(hyb) debt rating to ten outstanding subordinated debts issued by CNP between 2010 and 2016. A full list of ratings assigned in this rating action is available at the end of this press release.

RATINGS RATIONALE

The Baa3(hyb) rating of the restricted Tier 1 notes reflects their deeply subordinated status (the notes rank junior to all CNP's ordinary subordinated and dated junior subordinated debt but pari passu with undated junior subordinated debt), the risk of coupon cancellation on a non-cumulative basis (coupons can be cancelled at any time at the issuer option and are mandatorily cancelled if the group's solvency ratio falls below 100% or in case of regulatory intervention) and the risk of principal write-down under certain circumstances. The notes will be fully written down if CNP's own funds fall below 75% of the group's solvency capital requirements (SCR) or below the group's minimum capital requirements (MCR). The notes will also be partially written down if CNP's own funds fall between 100% and 75% of the group's SCR for more than three months, as prescribed by the regulation.

Moody's assesses the probability of the write-down trigger (own funds below 100% of the group's SCR) to be breached using an approach that is model-based. The outcome of the model is then supplemented by qualitative considerations which can be insurer or jurisdictional specific as well as the variability of the loss in case of write-down.

The model takes into account CNP's creditworthiness as captured by its A1 insurance financial strength rating (IFSR), Moody's expectation of the group's Solvency II ratio and its disclosed ratio sensitivities. CNP reported a 190% Solvency II ratio at year-end 2017 and the group's ratio has remained within the 160%-200% ranged since 2015. The Baa3(hyb) rating is below the rating that would apply to CNP's traditional subordinated debt or preferred stock without equity conversion or principal write-down.

Moody's notes that regulation informing the write-down method does not provide for detailed principles with regards to a partial write-down. The European Insurance and Occupational Pensions Authority (EIOPA) proposed to amend the existing regulation in February 2018 to specify a write-down on a linear basis in a manner which ensures that full write down occurs at or before 75% coverage of the SCR is reached.

Moody's mentions that the documentation of the notes also allows for a conditional and discretionary principal reinstatement of the notes in the first ten years following a write-down. Such reinstatement would be possible if the group complies back with its SCR requirements, is not subject to any administrative procedure and if such reinstatement was allowed by the regulation. The reinstatement would occur only on the basis of profits generated subsequent to the restoration of the SCR. Moody's notes that currently, the Solvency II regulation neither explicitly forbids nor explicitly allows such reinstatement mechanism.

The notes are intended to qualify as restricted Tier 1 capital under Solvency II and will receive equity credit, as other restricted Tier 1 securities.

The A3(hyb) rating assigned on the ten outstanding CNP's subordinated debt reflect their ranking (all these debts are subordinated), their optional coupon deferral mechanism (for all of them except the Tier 3 securities issued in 2016), their mandatory coupon deferral mechanism (in case of breach of the SCR requirements or of the Minimum Capital Requirements in the case of the Tier 3 issued in 2016), and the cumulative nature of these securities. The A3(hyb) ratings are in line with Moody's standard notching practices for those instruments.

CNP has the option to vary the terms and conditions of all these subordinated debts, notably if these debts fail to qualify as regulatory capital. However, Moody's believes that the likelihood that CNP is placed in a position to exercise this option is low, and in most cases the terms cannot be changed in a way that is materially adverse to the investor. In particular, in many of these securities, CNP is not allowed to add principal write-down or conversion into shares features.

WHAT COULD MOVE THE RATINGS UP/DOWN

The key drivers of the restricted Tier 1 notes' rating are the level of CNP's consolidated Solvency II ratio and its A1 IFSR. Negative rating action on the notes could occur if CNP's Solvency II ratio deteriorates below 165%, and/or if CNP's A1 IFSR is downgraded.

The ratings of other CNP's subordinated debts could be downgraded if CNP's A1 IFSR is downgraded.

Factors that could lead to a downgrade of CNP's IFSR are (1) the loss of a significant distribution agreement, which would materially affect CNP's franchise and financial metrics, (2) a prolonged decline in profitability with a return on capital below 5% resulting, for example, from the group's unability to grow profitably protection and unit-linked business to offset the expected gradual decline in earnings generated by the traditional savings business, (3) a reduced capitalization resulting, for example, in a Solvency II ratio consistently below 160%, or (4) an increased adjusted financial leverage to above 30% and reduced earnings coverage to below 5x, or a material change in CNP's shareholders structure which would result in a reduced financial flexibility.

Conversely, positive rating action on the restricted Tier 1 notes could occur if CNP' s Solvency II ratio rises consistently above 210%, and/or if CNP's A1 IFSR is upgraded.

The ratings of other CNP's subordinated debts could be upgraded if CNP's A1 IFSR is upgraded.

Factors that could lead to an upgrade of CNP's IFSR are (1) a material improvement in geographic, business and distribution diversification or (2) a decrease in high risk assets and improvement in capitalisation, as evidenced by a Solvency II ratio sustainably above 200%, with low volatility risk.

LIST OF ASSIGNED RATINGS

Assignments:

..Issuer: CNP Assurances

.... Pref. Stock Non-cumulative, Assigned Baa3 (hyb)

....EUR750M 6% Subordinate Regular Bond/Debenture Sep 14, 2040, Assigned A3 (hyb) - ISIN FR0010941484

....EUR700M 6.875% Subordinate Regular Bond/Debenture Sep 30, 2041, Assigned A3 (hyb) - ISIN FR0011033851

....GBP300M 7.375% Subordinate Regular Bond/Debenture Sep 30, 2041, Assigned A3 (hyb) - ISIN FR0011034065

....US$500M 7.5% Subordinate Regular Bond/Debenture, Assigned A3 (hyb) - ISIN FR0011345552

....US$500M 6.875% Subordinate Regular Bond/Debenture, Assigned A3 (hyb) - ISIN FR0011538461

....EUR500M 4.25% Subordinate Regular Bond/Debenture Jun 5, 2045, Assigned A3 (hyb) - ISIN FR0011949403

....EUR500M 4% Subordinate Regular Bond/Debenture, Assigned A3 (hyb) - ISIN FR0012317758

....EUR750M 4.5% Subordinate Regular Bond/Debenture Jun 10, 2047, Assigned A3 (hyb) - ISIN FR0013066388

....US$500M 6% Subordinate Regular Bond/Debenture Jan 22, 2049, Assigned A3 (hyb) - ISIN FR0013101599

....EUR1000M 1.875% Subordinate Regular Bond/Debenture Oct 20, 2022, Assigned A3 (hyb) - ISIN FR0013213832

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Life Insurers published in May 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Benjamin Serra
Senior Vice President
Financial Institutions Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Antonello Aquino
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
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Client Service: 44 20 7772 5454

No Related Data.
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