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Credit insurer Coface plots turnaround as emerging-market claims jump

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Credit insurer Coface plots turnaround as emerging-market claims jump

French export-credit insurer is working on a strategy tocut costs and protect its revenues after soaring nonpayments by emerging-marketimporters look set to slash its net income by at least half.

Coface's shares plunged 22% by July 12 after it July 4 that its lossratio would shoot up to 67% in the second quarter of year. The loss ratio,which is claims divided by premiums, should come in between 63% and 66% for thefull year, up from 52.5% in 2015.

This would slash net income by between €63 million and €81million, Moody's analysts calculated. Total 2015 net income was €126 million.

CEO Xavier Durand, who took over in February, has reshuffled top management andtold the market to expect a more detailed plan to "adapt the group'sgrowth strategy and cost structure to this more difficult environment" onJuly 27, when the company reports second-quarter results.

Falling commodity prices have made it more difficult foremerging-market importers to pay Coface's clients. Debt collection times havealso risen, the company said.

The new management team is likely to focus on improvingefficiency and risk management, Brandan Holmes, senior analyst at Moody's, saidin an interview. Losses may eat into Coface's Solvency II ratio of 142%, butthe company should stick with its focus on Asia and emerging markets, he said.

"We would view a credible strategy for responsible and profitablegrowth in these markets as positive," he said. One option might beexpanding into the fee-for-service business, he said.

Coface cut its exposure to Latin America and theAsia-Pacific region by 23% to €86 billion between the beginning of 2015 and theend of March, 2016, Moody's noted in a report. But that was still 19.1% oftotal exposures, almost double the percentage at rival Euler Hermes.

The company may need a global review of all its businessesand should provide more clarity about how it will improve risk management,especially in emerging markets, a French analyst said, asking not to be named.

Even as losses mount in emerging markets, the company isfacing squeezed profits elsewhere. At the end of 2016, the French governmentwill take its export guarantee scheme off Coface's hands and give it to BanquePublique d'Investissement. The government will however compensate Coface for2.2 years' worth of the lost income, which accounted for 4% of 2015consolidated revenue, Moody's analysts noted.

GroupeBPCE, parent company of Natixis, has said Coface is no longer core to itsbusiness. But the financial group will likely wait for better times beforecutting its 41.37% stake, the French analyst said: "Clearly, thevaluations of the shares are not optimal at the moment."

Coface appointed its first COO, Valérie Brami, on July 5.Earlier in the month, it hired a new group risk director, a new and a new CEO for Asia-Pacific.