French Social Security Agency ACOSS 'AA/A-1+' Ratings Affirmed; Outlook Stable

  • We think Agence Centrale des Organismes de Sécurité Sociale (ACOSS) plays a critical role for the French government in collecting and redistributing France's general scheme social security contributions and closing cash flow gaps through short-term funding only, excluding any borrowing of more than one year as per law.
  • ACOSS' status as a state public agency implies strong state supervision and support, and we believe there is an almost certain likelihood that the French government would provide timely and sufficient extraordinary support to ACOSS if needed.
  • Consequently, we are affirming our 'AA/A-1+' ratings on ACOSS.
  • The stable outlook reflects that on France.
PARIS (S&P Global Ratings) April 17, 2019--S&P Global Ratings today affirmed its 'AA/A-1+' long- and short-term issuer credit rating on France's central social security agency, Agence Centrale des Organismes de Sécurité Sociale (ACOSS). The outlook is stable.
At the same time, we affirmed our 'A-1+' issue ratings on ACOSS' €40 billion French commercial paper (NEU CP) program and €40 billion Euro commercial paper (CP) program.
We equalize our rating on ACOSS with those on France (unsolicited, AA/Stable/A-1+) because, based on our view of ACOSS' critical role for and integral link with the French government, we consider that there is an almost certain likelihood that the government would provide timely and sufficient extraordinary support to ACOSS in the event of financial distress.
Moreover, we do not see the likelihood of government support as subject to transition risk, and therefore expect the ratings and outlook on ACOSS will move in line with those on France. Furthermore, we consider that the French government's limited level of contingent liabilities would not constrain its capacity and willingness to support ACOSS in a timely manner if the agency was in financial distress. More generally, we don't consider the government's general propensity to support the government-related entity (GRE) sector as doubtful.
France's constitutional laws, set in 1945, safeguard the French population's right to receive social protection. We consequently expect ACOSS' role for the French government will remain critical. ACOSS' role primarily consists of managing France's social security general scheme cash flows by supervising and centralizing the collection of contributions, ensuring the timely redistribution of social benefits, and closing cash flow gaps through short-term funding only. Subsequently, Caisse d'Amortissement de la Dette Sociale (CADES; the social security debt amortization fund, which redeems France's social security debt) is in charge of refinancing and amortizing accumulated Social Security System (SSS) deficits. This explains why ACOSS legally focuses only on short-term funding, rather than any long-term borrowings (more than one year).
Social transfers comprise more than one-half of health, work accident, and illness benefits; one-third old age pensions; and the rest is family benefits. These transfers benefit the majority of French people and their timely payment, especially of pensions, is crucial. General scheme expenditures accounted for about 70% of France's total social security expenditure and about 16% of GDP in 2018. We also believe a default of the entity would significantly damage the central government's reputation.
As part of the French SSS, ACOSS was set up in 1967 as a state public administrative agency (Établissement Public à Caractère Administratif; EPA). Owing to this status, we view the government as ultimately responsible for ACOSS' solvency. The agency's legal status, mission, and funding are precisely framed by law, which, in our opinion, entails an integral link between ACOSS and the French government. We don't anticipate any change in ACOSS' legal status.
The Ministry of Solidarity and Health and the Ministry of Public Action and Accounts provide strong and broad state supervision of ACOSS on a daily basis. ACOSS' general director is appointed by decree and reports directly to the ministries. The general director's main mandate is to strictly implement the central government's decisions and policies on the SSS. Since 1996, ACOSS has signed multiyear contracts with the government laying out its objectives. ACOSS and the central government signed a new contract for 2018-2022 with a special focus on digital transformation and reinforcing the service provided to SSS contributors.
As part of the tight framework regulating ACOSS' activities, the French parliament sets ACOSS' external funding ceiling in its Social Security Funding Laws. For 2019, ACOSS' external funding ceiling is set at €38 billion, like in 2018. Social security accounts continue to improve and ACOSS' annual cash balance change in 2018 was positive for the first time since 2001. The Social Security Funding Law for 2019 has allowed some exceptions to article L 131.7 of the Social Security Code that states the central government must fully compensate all reductions or exemptions in social security contributions via its budget. This will partly weight on ACOSS' funding needs but we expect the central government will monitor the magnitude of these exceptions, and that this will not prevent ACOSS posting a positive annual cash balance in 2019. Moreover, the central government has planned new debt transfers of up to €15 billion of from ACOSS to CADES during 2020-2022, testifying to the ongoing financial support extended by the state through CADES.
The stable outlook on ACOSS reflects our stable outlook on France. We believe that ACOSS will retain its critical role for and integral link with France. We therefore expect the ratings on ACOSS will move in line with those on the sovereign.
We could lower our ratings on ACOSS following a similar rating action on France. We could also lower the ratings if we believe that ACOSS no longer has an integral link with the government, for example, if ACOSS were to lose its EPA status or if its role were to diminish. However, we currently view these developments as very unlikely.
Conversely, we could raise the long-term rating if France's credit quality were to improve and the likelihood of support for ACOSS remained almost certain.
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