The Aa3 insurance financial strength (IFS) rating of Euler Hermes SA (”EH”, formerly Euler Hermes Europe SA) reflects the group's very strong position in the credit insurance market globally, its strong capitalisation, conservative investment quality and strong underwriting profitability on a through-the-cycle basis, albeit with an expectation of significant underwriting losses being incurred during 2020 related to the coronavirus. These strengths are partially offset by the company's limited diversification beyond credit insurance, an inherently cyclical and competitive industry with meaningful exposure to country-specific risks and the global economic environment, and its strong growth in the surety and bonding sector which is a longer term exposure that reduces its overall underwriting flexibility. EH's P-1 short-term IFSR also reflects the group's solid financial profile with a conservative and highly liquid investment portfolio.
EH's rating benefits from implicit and explicit support provided by its parent, Allianz SE (IFS Aa3, stable).
S&P Global Ratings considers global trade credit insurance provider Euler Hermes group (EH) to be core to the Allianz group because of Allianz's full ownership of the company and EH's sustainable earnings contribution. EH also enlarges Allianz's product offering and strengthens its reach. As an important global line, EH supports the group's global corporate franchise and facilitates first-hand insight into more short-term global credit trends.
Although EH operates as a stand-alone unit due to the nature and specificities of its activities, there is strategic and operational integration with its parent. For example, EH uses Allianz's internal capital model for measuring investment, counterparty, and operational risks, and has adopted Allianz's risk management best practices and other central functions.