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Rating Action:

Moody’s assigns ratings of Baa1(hyb) to MACIF’s Tier 2 and Tier 3 debt and Ba1(hyb) to its restricted Tier 1 notes

08 June 2021


Paris , June 8, 2021 – Moody's Investors Service (Moody's) today assigned Baa1(hyb) ratings to the dated subordinated Tier 3 notes and the dated junior subordinated Tier 2 notes to be issued by MACIF (Insurance Financial Strength Rating (IFSR) A2, stable). In addition, Moody's assigned a Ba1(hyb) rating to MACIF's perpetual restricted Tier 1 notes. The issuance amounts are only indicative at this stage. The total amount of issuance will be EUR1.75 billion, out of which EUR400 million of restricted Tier 1 notes is expected.

The restricted Tier 1 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 ) published in May 2018.

RATINGS RATIONALE

The subordinated debt, junior subordinated debt and restricted Tier 1 notes will form part of the funding of the acquisition of Aviva France, the French subsidiary of Aviva Plc (senior unsecured debt A2 stable), by Societe de Groupe d'Assurance Mutuelle (SGAM) Aema Groupe, the newly formed group resulting from the combination of MACIF and Aesio. Their ratings are consistent with Moody's standard notching practices for debt issued by insurance operating companies.

The Baa1(hyb) rating of the dated subordinated Tier 3 notes reflects (i) the subordinated ranking of the debt, (ii) the mandatory coupon deferral mechanism in case of breach of the minimum capital requirement (MCR) at the level of MACIF or the SGAM Aema Groupe and (iii) the cumulative nature of deferred coupons, in case of deferral. The notes are intended to qualify as Tier 3 capital under Solvency II but, given their maturity of less than 30 years, they will not result in any equity credit under Moody's debt equity continuum.

The Baa1(hyb) rating of the dated junior subordinated Tier 2 notes reflects (i) the subordinated ranking of the debt, (ii) the optional and mandatory coupon deferral mechanism in case of breach of the solvency capital requirement (SCR) or MCR at the level of MACIF or the SGAM Aema Groupe and (iii) the cumulative nature of deferred coupons, in case of deferral. The notes are intended to qualify as Tier 2 capital under Solvency II and their hybrid features will result in some equity credit based on the notes' above 30-year maturity.

The Ba1(hyb) rating of the perpetual restricted Tier 1 notes reflects their deeply subordinated status (the notes rank junior to all MACIF's dated subordinated and dated junior subordinated debt), the risk of coupon cancellation on a non-cumulative basis (coupons can be cancelled at any time at the issuer's option and are mandatorily cancelled in case of breach of the SCR or MCR at the level of MACIF or the SGAM Aema Groupe or in case of regulatory intervention) and the risk of principal write-down under certain circumstances. The notes will be fully written down if MACIF's or SGAM Aema Groupe's own funds fall below 75% of the SCR or below their MCR. The notes will be partially written down if MACIF's or SGAM Aema Groupe's own funds fall between 100% and 75% of the 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) being 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.

The model takes into account MACIF's creditworthiness as captured by its A2 IFSR, Moody's expectation of SGAM Aema Groupe's Solvency II ratio (pro forma for the acquisition of Aviva France) and its disclosed ratio sensitivities.

MACIF disclosed a pro forma Solvency II ratio for the SGAM Aema Groupe of 159% at end-March 2021. In addition, the acquisition of Aviva France has increased the sensitivity of this ratio to interest rates, given the increased weight of the life operations in the new group. MACIF disclosed that a 50 basis-point decline in interest rates would cause a decline in its solvency ratio of 21 percentage points. Nonetheless, MACIF committed to increase solvency to 190% by 2024 through organic capital generation.

The restricted Tier 1 notes also allow for a conditional and discretionary principal reinstatement in the first ten years following a write-down. Such reinstatement would be possible if the group complies again with its SCR, 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.

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

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Although unlikely in the short term, the subordinated and junior subordinated ratings could be upgraded following an upgrade of MACIF's IFSR. The IFSR could be upgraded if profitability was to improve meaningfully, as reflected by a sustained improvement of the combined ratio below 95% across the insurance cycle and a stronger capitalization, as evidenced by a Solvency II ratio sustainably above 200%.

Conversely, these ratings could be downgraded following a downgrade of MACIF's IFSR in case of a deterioration in profitability, as evidenced by a combined ratio consistently above 103%, a material deterioration of asset quality, weakening capitalization, as evidenced by a decline of the Solvency II ratio below 150% over time or a failure to properly execute the transaction.

The two key drivers of the rating of the restricted Tier 1 notes are (1) the level of SGAM Aema Groupe's Solvency II ratio and (2) MACIF's IFSR. A downgrade of the notes could occur if SGAM Aema Groupe's Solvency II ratio declined sustainably below 150% and/or if MACIF's A2 IFSR were downgraded. Conversely, an upgrade of the notes could occur if SGAM Aema Groupe's Solvency II ratio increased sustainably above 180% and/or if MACIF's A2 IFSR were upgraded.

PRINCIPAL METHODOLOGIES

The methodologies used in these ratings were Life Insurers Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187348 , and Property and Casualty Insurers Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187352 . Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068 .

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Guillaume Lucien-Baugas
VP-Senior Analyst
Financial Institutions Group
Moody's France SAS
96 Boulevard Haussmann
Paris
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 :
Moody's France SAS
96 Boulevard Haussmann
Paris, 75008
France
JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

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