LA MONDIALE

Rating Action & Rationale

EthiFinance Ratings affirms La Mondiale’s rating at A-, but changes the outlook from Stable to Negative. This reflects the negative impact of lower premiums and higher claims on La Mondiale's financial profile. 

Our credit rating remains supported by La Mondiale’s leading position in the French insurance market, with a high share (more than half) of Unit Linked products, which allow for higher profitability and lower capital requirements than General Account products. Furthermore, our rating is underpinned by La Mondiale’s robust solvency, with a solvency coverage ratio of 272% in 2023, exceeding the median solvency coverage ratio of 244% for European life insurers as reported by EIOPA.

Nevertheless, our credit rating is constrained by limited efficiency, which began to deteriorate in 2022 and continued to be affected in 2023 by an increase in claims, coupled with a fall in premiums, reaching the lowest threshold in our insurance rating methodology.  In addition, the rating indicates a moderate profitability, which, in 2023 (excluding goodwill impairment), was mostly affected by higher claims and lower premiums, mainly offset by its financial income and change in fair value of financial instruments. Moreover, La Mondiale is highly concentrated in the French life insurance market compared to its peers, with France accounting for 72.1% of earned premiums in 2023.

Executive Summary

La Mondiale, SAM (hereinafter, La Mondiale) is a French Mutual Insurance Company founded in 1905 which specializes in life insurance and savings. La Mondiale primarily markets individual, and group supplementary retirement plans and savings products to individuals, self-employed professionals, and small businesses. La Mondiale is part of the French mutual group SGAM AG2R La Mondiale. 

Fundamentals

• Leading player in the French insurance market: 2nd in supplementary pension and 12th in savings. Strong position in strategically selected niches, particularly in high-net-worth savings and pension plans for independent workers and group pensions.
• High concentration in the French life insurance market: France accounted for 72.1% of earned premiums in 2023, up from 68.3% in 2022. The remaining 27.9% of premiums (2022: 31.7%) came from other European Union countries, highlighting the increasing reliance on the domestic market. Historically, life and savings products have represented approximately 70% of Gross Written Premiums, while the remaining 30% has come from pension plans.
• The allocation of premiums favors Unit Linked (UL) products: UL made up 52% of Gross Written Premiums in 2023, while General Account products accounted for the remaining 48%. La Mondiale has increased its share of UL products over time, outperforming the broader French insurance market, which stood at 41% in 2023. 
• Moderate profitability: Excluding extraordinary impacts (goodwill impairment of €161.7 billion), ROA closed 2023 at 0.24% (2022: 0.22%) and ROE at 5.34% (2022: 5.15%). The slight increase in profitability was mainly driven by the effect of a positive net change in the value of investments compared to a negative net change in 2022, and a higher net financial income, despite lower earned premiums, higher claims, and a provisioning charge compared to a release in 2022. 
• Significant drop in efficiency: The combined ratio began to deteriorate in 2022 and continued to do so in 2023, from 89.72% in 2021 to 103.8% in 2022 and 137.5% in 2023, primarily due to an increase in the loss ratio. The loss ratio rose from 80.3% in 2021 to 93.2% in 2022 reaching 127.2% in 2023, with a 45% increase in claims from 2021 to 2023 (10% from 2021 to 2022 and 31% from 2022 to 2023). This has been accompanied by a decline in premiums in 2022 and 2023. 
• Asset allocation focused on fixed income and adequate credit risk management: The investment portfolio amounted to €106.2 billion in 2023 (2022: €104.9 billion), consisting of Unit Linked assets (35%) and General Account (GA) assets (65%). The GA portfolio was primarily composed of fixed income (81%), followed by equity (6%) and property (6%). The fixed income portfolio emphasizes geographic diversification and very high credit quality with an average rating of A+. It has a limited risk exposure, with 20% rated BBB and no significant high yield exposure.
• Robust solvency: solvency coverage ratio improvement from 241% in 2022 to 272% in 2023, exceeding the median solvency coverage ratio of 244% for European life insurers as reported by EIOPA.
• Moderate financial leverage and good coverage ratio according to our insurance methodology: The financial leverage ratio for 2023 was 56% (2022: 57.6%). Additionally, the coverage ratio improved from 3.7x in 2022 to 4.9x in 2023. Financial debt amounted to €3.1 billion in 2023, down from €3.2 billion in 2022 and consisted primarily of subordinated bonds.

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Key figures

Outlook

The negative outlook reflects the sharp increase in the combined ratio, which reached 138% in 2023, the second year in which it has worsened, placing this ratio at the limit of the lowest threshold. In addition, the downward trend in premiums has also contributed to the deterioration of the combined ratio and, if both trends continue, this could lead to a rating downgrade.

Rating sensitivities

Detailed below are the factors that individually or collectively could impact the company’s rating:

-           Positive factors 

Our rating could be upgraded due to an increase in geographic or business diversification; a shift in the premium trend, returning to growth after having declined over the past two years; a rise in profitability ratios, with an ROA above 0.3% and an ROE above 6.7%; a significant improvement in efficiency, reducing the combined ratio below 94%; or a decrease in the financial leverage ratio to 40%.

-           Negative factors

Our rating could be downgraded due to a reduction in market share owing to increased competition; continued premium declines, reduced profitability (with ROA falling below 0.15% and ROE below 5.0%), very low efficiency with a combined ratio that continues to exceed 110% for several periods; a weaker solvency position, with a solvency coverage ratio below 190%; or a decrease in the fixed charge coverage ratio to 3x, showing less capacity to cover interest expenses. 

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Company profile

Business model

La Mondiale, founded in 1905, is a Mutual Insurance Company specializing in life insurance and savings. Owned by its policyholders, who share in profits and governance, it offers coverage for their mutual benefit. La Mondiale primarily markets individual, and group supplementary retirement plans and savings products to individuals, self-employed professionals, and small businesses.

La Mondiale is a member of the Social Protection Group AG2R LA MONDIALE, France's leading provider of social and wealth protection. Insurance activities are overseen by SGAM AG2R LA MONDIALE, a Mutual Insurance Group Company established in 2008 by AG2R Prévoyance and La Mondiale. The SGAM aims to create and manage strong, long-term financial solidarity among its affiliates, implement beneficial policies, establish a coherent commercial strategy, and support the joint organization of activities.

AG2R La Mondiale has a prominent business position in France, as well as a diverse distribution network. La Mondiale is a leading player in the French insurance market, ranked 2nd in supplementary pension and 12th in savings. It has established a strong position in strategically selected niches, particularly in high-net-worth savings and pension plans for independent workers and group pensions. Its affluent client base has allowed the company to markedly outperform the market in terms of Unit Linked savings. 

SGAM AG2R LA MONDIALE includes La Mondiale and the Provident Institution SGAPS AG2R LA MONDIALE, which offers protection insurance through AG2R Prévoyance and Arpege Prévoyance. Additionally, the Group comprises an Agirc-Arrco Retirement Institution, a French supplementary pension scheme providing additional retirement benefits to private sector employees. 

On June 29, 2021, La Mondiale acquired a 67% stake in Ægide-Domitys, a leading French provider of senior service residences, aiming to expand its presence in the senior living sector. The remaining shares are held by Nexity (18%) and the founders (15%). The acquisition prompted a long-term partnership between AG2R La Mondiale, Ægide-Domitys, and Nexity, focusing on strategic real estate promotion and the management of senior living residences. The acquisition enhanced La Mondiale's diversification by integrating Ægide-Domitys' senior living expertise. However, risks included significant impairments on real estate investments and a revenue decline in 2023 due to inflation and rising interest rates.

The Board of Directors sets the Group's political and strategic directions, while the Boards of Directors of the entities within the Group have full authority to independently govern their organizations regarding their specific social missions.

La Mondiale is highly concentrated in the French life insurance market compared to its peers, with France accounting for 72.1% of earned premiums in 2023, up from 68.3% in 2022. The remaining 27.9% of premiums, down from 31.7% in the previous year, came from other European Union countries, highlighting the increasing reliance on the domestic market.

Historically, La Mondiale has generated the majority of its premiums from life and savings products, which represent approximately 70% of gross written premiums, while the remaining 30% comes from pension plans.

La Mondiale offers two types of insurance products: Unit Linked (UL) and General Account (GA). UL products involve life and savings contracts where the policyholder assumes investment risk while the company provides minimum death coverage. Premiums cover insurance charges, with the net amount invested in various asset classes. Although UL products allow for higher profitability and lower capital requirements, they also carry increased risk compared to traditional GA products, which require more capital and typically have a conservative, low-risk profile.

The allocation of premiums favors UL products, making up 52% of gross written premiums in 2023, while GA products accounted for the remaining 48%. La Mondiale has increased its share of UL products over time, outperforming the broader French insurance market, which stood at 41% in 2023.

Financial profile

Earnings and profitability

Earned premiums amounted to €7.4 billion in 2023, down 3.7% from €7.7 billion in 2022 (compared with €8.1 billion in 2021). 

La Mondiale's life & savings insurance premiums totaled €4.4 billion in 2023, down 12.3% from €5 billion in 2022. Although, La Mondiale significantly outperformed the market in 2020 and 2021, it underperformed in 2022 and 2023 due to the impact of wealth savings. 

In 2022 and 2023, the European Central Bank (ECB) raised short-term interest rates to combat inflation, leading to an inversion of the yield curve. This inversion made short-term banking products like Livret A accounts and uncapped term accounts more attractive than life insurance products, which rely on long-term interest rates. As long-term rates fell at the end of 2022 and 2023, life insurance returns also decreased, resulting in a lag in performance. Consequently, life savings insurance was particularly affected because banking partners chose to promote these short-term products instead of life insurance contracts during this time. To address this, La Mondiale relaxed subscription conditions to encourage premium contributions amid competition from short-term banking products. UL rates (percentage of the premium invested in UL) fell from a historic high of 61% in 2022 to 57% in 2023. Despite this decline, it remained 16 points above the market average of 41% in the overall life insurance market. GA products offer guaranteed returns based on conservative investments and are therefore less sensitive to fluctuations in short-term interest rates.

La Mondiale’s supplementary retirement contributions amounted to €2.2 billion in 2023, up 12.6% from €1.9 billion in 2022. Growth was stronger for group contracts (19.6%) than for individual contracts (3.9%). This trend reflects robust commercial activity, especially in a more competitive supplementary retirement market following the Pacte law (Action Plan for Business Growth and Transformation), which aims to simplify and promote savings and investment options by facilitating the creation of new retirement products and streamlining the regulatory framework. The Pacte law has encouraged more providers to enter the market and innovate their offerings, leading to better options and pricing for consumers in the supplementary retirement market.

UL rates rose to 42% in 2023 from 36% in 2022 due to the widespread adoption of horizon-based management and the introduction of new products with higher UL rates, reflecting a growing preference for market-linked investment options within insurance policies.

Health and protection contributions reached €0.8 billion in 2023, up 10.6%. Most of these contracts fall under the reinsurance agreement between AG2R Prévoyance and La Mondiale. However, La Mondiale also conducts reinsurance operations with La Mondiale Partenaire, ARIAL CNP ASSURANCES and La Mondiale Europartner. 

Net expenses from reinsurance cessions amounted to €34.3 million in 2023, down 12.2% from €39.0 million in 2022. Ceded premiums increased 33.5%, totaling €229.6 million, accounting for 3.1% of earned premiums, up from 2.2% in 2022, which suggests that La Mondiale is strategically transferring more risk to reinsurers.

Claims amounted to €9.4 billion in 2023, up 31.4% from €7.2 billion in 2022 (compared to €6.5 billion in 2021). Over the last five years, claims have risen steadily, registering a 17.4% CAGR. The loss ratio rose 34 points, from 80.3% in 2021 to 93.2% in 2022, reaching 127.2% in 2023. This sharp increase resulted from an increase in claims from 2021 to 2023 (10% from 2021 to 2022 and 31% from 2022 to 2023), accompanied by a decline in premiums in 2022 and 2023. La Mondiale relied on investment income to offset the losses from underwriting. However, this reliance on investment income is not a sustainable long-term strategy, as market conditions can fluctuate and impact investment returns.

Administrative expenses decreased by 2.6%, totaling €1.5 billion in 2023. This figure includes expenses from ÆGIDE-DOMITYS, which was integrated on June 29, 2021, accounting for the notable increase between 2021 and 2022. Excluding these non-insurance expenses, administrative costs specifically related to insurance operations amounted to €750.1 million in 2023, down 4.1% from €782.6 million in 2022. Consequently, the expense ratio for 2023 was 10.6% (2022: 10.7%). The average expense ratio from 2019 to 2023 was 10.4%. 

The combined ratio rose to 137.5% in 2023, a significant increase of 34 points from 103.8% in 2022 (89.72% in 2021), primarily due to a sharp rise in the loss ratio. Over the period from 2021 to 2023, the combined ratio averaged 110.4% (94.75% from 2020 to 2022), closing at the lowest threshold of our insurance rating methodology, constituting one of the main constraints of the rating. 

As for other activities, the integration of ÆGIDE-DOMITYS into La Mondiale has generated revenue of €0.5 billion, up 3.1%.  ÆGIDE-DOMITYS is the leader in senior service residences in France, designing and offering housing adapted to the needs and aspirations of independent seniors.

Moreover, the financial income amounted to €2.6 billion, a 4.1% increase from €2.5 billion in 2022, primarily due to higher gains from the realization of investments. 

On the other hand, financial and interest expenses decreased by 3.5%, totaling €800.6 million in 2023 compared to €829.2 million in 2022, as a result of lower losses from the realization of investments.  

The net change in the value of investments amounted to €3.1 billion in 2023 compared to €-4.3 billion in 2022. The negative net change in 2022 can be attributed to the poor performance of financial markets, which was primarily driven by interest rate hikes. 

Considering all the above, the net income totaled €111.3 million in 2023, declining 56.8% from €257.6 million in 2022, primarily due to a goodwill impairment of €161.7 billion. The decrease in earned premiums and the increase in insurance services expenses due to higher claims negatively impacted the results. However, these effects were more than offset by higher net financial income and a significant positive net change in the value of investments.

In 2023, the return on assets (ROA) was 0.1%, down from 0.22% in 2022. Excluding extraordinary impacts, the ROA for 2023 was 0.24%, with an average ROA of 0.26% from 2019 to 2023. The return on equity (ROE) stood at 2.2% in 2023, compared to 5.15% in 2022. Excluding extraordinary impacts, the ROE for 2023 was 5.34%, with an average ROE of 5.5% from 2019 to 2023. According to EthiFinance’s methodology, this reflects moderate profitability. 

Investment portfolio

Total assets amounted to €115 billion in 2023, up from €113.3 billion in 2022. The investment portfolio represented 92% of total assets in 2023 (2022: 93%), totaling €106.2 billion (2022: €104.9 billion). GA assets represented 65% of the portfolio, amounting to €69.2 billion, down from €72.1 billion in 2022. The remaining 35% consisted of UL assets, totaling €37.1 billion, a significant increase from €32.8 billion in 2022. The net book value of the portfolio rose by 1.3%, driven by a strong 12.9% increase in UL assets. 

The GA portfolio was primarily composed of fixed income, which represented 81% of the assets, totaling €56.3 billion. Equity investments amounted to €4.2 billion, accounting for 6% of the portfolio. Property investments also stood at €4.2 billion, making up another 6%. The remaining 6% was allocated to other types of investments. Changes in the value of investments are recorded in the income statement as losses. 

The fixed income portfolio emphasizes geographic diversification and very high credit quality with an average rating of A+. It has limited exposure to risky investments, with 20% rated BBB and no significant high yield exposure. There are no floating rate bonds. Total sovereign exposure amounts to €9.8 billion, accounting for 22% of the portfolio. France holds the largest share at 72%, followed by Belgium and peripheral countries (Spain, Italy, Ireland and Portugal) each at 7%. 

The equity portfolio rebounded strongly in 2023, achieving a +19.7% return, after experiencing -7.6% in 2022 and +26.1% in 2021, benefiting from favorable market conditions. It is strategically diversified across geographical regions and sectors, emphasizing large, highly liquid stocks traded on major exchanges. France dominates with a 63% allocation, followed by the UK and the Netherlands, each comprising 7%. The portfolio hedges all foreign exchange exposures.

The property allocation emphasizes prime real estate, with 84% invested in offices located in Paris and its surrounding region. This strategic focus targets high-value assets in a prestigious market.

Liabilities

Total liabilities amounted to €109.4 billion in 2023, up from €107.8 billion in 2022. Technical reserves accounted for 88.3% of total liabilities in 2023 (2022: 88%), totaling €96.7 billion in 2023 (2022: €94.9 billion). Within technical reserves, 62% were allocated to GA products and the remaining 38% to UL, with a share of UL reserves 9 points higher than the market average. The rise in the share of unit-linked reserves is directly linked to the increase in the value of unit-linked contracts.

Technical reserves play a critical role in the financial stability and solvency of life insurance companies, ensuring they can honor their commitments to policyholders over the long term, despite the time lag between policy issuance and potential claim events. In 2023, private wealth management comprised 55% of technical reserves, with group pensions following at 26% and individual pensions at 14%. Retail savings represented 4% and protection stood at 2%. As a result, life and savings products accounted for the majority of technical reserves at 60%, with pensions making up the remaining 40%.

Financial debt amounted to €3.1 billion in 2023, down from €3.2 billion in 2022 and consisted primarily of subordinated bonds, including seven perpetual bonds, two bonds maturing in 2026 and 2044, and hybrid bonds maturing in 2031. These subordinated bonds paid a fixed rate ranging between 0.75% and 6.75%, except for one paying a variable rate plus a fixed rate of 3-month EURIBOR + 2.87%. 

The financial leverage ratio for 2023 was 56%, down from 57.6% in 2022, with an average of 51.6% from 2019 to 2023, indicating moderate leverage according to EthiFinance’s methodology. Additionally, the coverage ratio improved from 3.7x in 2022 to 4.9x in 2023, with an average of 4.8x from 2019 to 2023, demonstrating good coverage of interest expenses.

Solvency II

In a mutual insurance company, the policyholders collectively own the company, and their interests are aligned with the long-term success and financial stability of the insurer. Mutual insurance companies do not pay dividends to external shareholders. Instead, profits are reinvested back into the insurer, contributing to the policyholders' equity. This creates a financial cushion to cover unexpected claims, manage risks, and support the insurer’s ongoing operations.

La Mondiale's own funds comprise its settlement fund, retained earnings, subordinated bonds, and mutual certificates issued by the company. Equity totaled €5.6 billion, increasing 1.4% from €5.5 billion in 2022 driven primarily by retained earnings. The increase of €5.6 million in the settlement fund is attributed to the issuance of mutual certificates. 

La Mondiale demonstrates robust solvency with a solvency coverage ratio improvement from 241% in 2022 to 272% in 2023. This exceeds the median solvency coverage ratio of 244% for European life insurers as reported by European Insurance and Occupational Pensions Authority (EIOPA). The solvency coverage ratio achieves the highest rating according to EthiFinance’s methodology. Tier 1 and restricted Tier 1 funds, which are more stable, available, or have a greater capacity to absorb losses, constituted 82% of the eligible own funds to cover the Solvency Capital Requirement (SCR), while the remaining 18% was made up of Tier 2 funds. 

La Mondiale is primarily exposed to market risk related to the management of its portfolio, involving potential losses in the value of its investments due to market fluctuations. Additionally, it faces the underwriting risk related to its insurance activities, including potential losses or adverse changes in the value of commitments made under insurance policies, inadequacy of assumptions, and the establishment of provisions.

Environmental, Social and Governance

La Mondiale has demonstrated a strong commitment to integrating Environmental, Social, and Governance (ESG) principles into its operations and investment strategy. They view Socially Responsible Investment (SRI) as integral to sustainable development, making it the cornerstone of their investment decisions and asset management policy. Over the past 15 years, La Mondiale has actively contributed to the development of responsible investment, evident through formalized commitments, participation in professional organizations, and their investment strategy. 

Their responsible investment strategy involves the systematic integration of ESG criteria across all managed assets. This commitment is reinforced by adhering to the Principles and Objectives for Responsible Investment and the United Nations Principles for Responsible Investment (UN PRI). La Mondiale applies strict criteria, banning investments in controversial sectors including weapons prohibited by conventions, tobacco, and high coal-consuming companies. This selective approach is also evident in managing their SRI funds, which have garnered AFNOR's SRI label. These funds emphasize strong ESG ratings, retaining only the top-rated companies in each sector. 

La Mondiale's dedication extends beyond investments. They actively engage in social impact initiatives, supporting companies promoting societal integration through employment. Their involvement in the private equity market and support for small- and medium-sized enterprises underlines their commitment to regional economic development. Moreover, their investments in environmental funds and green bonds showcase a tangible commitment to combat climate change and the energy transition. 

In summary, La Mondiale demonstrates a comprehensive approach to ESG and sustainability. Their commitment extends through investment decisions, active participation in social impact endeavours, and sustainable property management practices. These efforts underscore their position as an SRI pioneer and leader, showcasing their alignment with responsible investment practices and sustainable development goals.

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Scorecard

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Financial statements