S&P Raises Ratings on 7 Insurance Holding Companies

Standard & Poor’s Ratings Services announced that it has raised its long-term counterparty credit and debt ratings on seven unregulated insurance and reinsurance holding companies. S&P also raised its ratings on certain debt issues guaranteed by the holding companies.

The bulletin identified the 7 holding companies affected as follows:
— Netherlands-based Achmea Holding N.V.,
— Bermuda-based Aspen Insurance Holdings Ltd.,
— Netherlands-based Eureko B.V.,
— U.K.-based Friends Provident PLC,
— Norway-based Storebrand ASA,
— Switzerland-based Swiss Life Holding, and
— Germany-based Talanx AG.

“The upgrades reflect the narrowing to two notches of the differential in the counterparty credit ratings on these companies relative to their regulated main operating subsidiaries,” said S&P credit analyst David Anthony. S&P explained that this adjustment to the previously applied three-notch ratings gapping causes a one-notch rise in the counterparty credit and debt ratings on the holding companies listed.

“This change is wholly attributable to a more flexible application of existing gapping criteria by Standard & Poor’s,” Anthony continued. “There has been no intrinsic change in either the overall credit risk profile or the debt leverage or debt-servicing capacity of any of the holding companies whose ratings are now being adjusted.”

S&P noted: “This rating action follows a portfolio review of rated (re)insurance holding companies undertaken by Standard & Poor’s in light of recent research into the degree of structural subordination embedded into the insurance and reinsurance regulation applied in various regions of the world (see “Insurance Criteria: Flexible Gapping of Ratings Reflects Regional Variations In Structural Subordination As Well As Differing Debt-Servicing Capacities”, published May 25, 2005, on RatingsDirect, Standard & Poor’s Web-based credit analysis system).

“The article identifies insurance and reinsurance regulators in the EU, Bermuda, and elsewhere as being more moderate in their enforcement of structural subordination than those in some other jurisdictions, notably the U.S. Under most foreseeable circumstances, European and Bermudan regulators are expected to raise no objection to a reasonable sum of cash dividends being upstreamed from appropriately solvent, regulated operating subsidiaries to their unregulated holding company parents, thereby reinforcing those holding companies’ ability to service their debt obligations in a full and timely manner even during times of moderate financial stress for the group.

“This pragmatic regulatory stance, coupled with satisfactory operating cash flows, liquidity, and financial flexibility (that is, the ability to raise additional capital and liquidity according to probable needs) at each of the seven holding companies covered by this rating action, leads Standard & Poor’s to believe that, in these instances, a two-notch differential between the operating and the holding company ratings is sufficient to indicate the still somewhat greater loss probability of counterparties of holding companies relative to those of their asset-rich, regulated operating subsidiaries.

“Indeed, many highly rated insurance and reinsurance holding companies already enjoy a similar differential of two notches or, occasionally, even less. However, in light of its research, Standard & Poor’s has now extended the application of this two-notch gapping so as to make it the norm for investment-grade insurance and reinsurance holding companies located in the EU and Bermuda. The various operating subsidiaries related to the holding companies are unaffected by this revised application of holding company gapping criteria, and their ratings remain unchanged.”

S&P’s ratings on the affected companies are now as follows:

— Achmea Holding N.V. Counterparty credit ratings A-/Stable/A-2 BBB+/Stable/A-2 Senior unsecured debt* A- BBB+;
— Aspen Insurance Holdings Ltd. Counterparty credit rating BBB+/Stable/– BBB/Stable/– Senior unsecured debt BBB+ BBB;
— Eureko B.V. Counterparty credit rating A-/Stable/– BBB+/Stable/-;
— Friends Provident PLC Counterparty credit rating A-/Stable/– BBB+/Stable/– Senior unsecured debt A- BBB+;
— Storebrand ASA Counterparty credit rating BBB+/Stable/– BBB/Stable/– Senior unsecured debt BBB+ BBB;
— Swiss Life Holding Counterparty credit rating BBB/Negative/– BBB-/Negative/– Senior unsecured debt BBB BBB-; Swiss Life Cayman Finance Ltd. Senior unsecured debt** BBB BBB-;
— Talanx AG Counterparty credit rating A/Stable/– A-/Stable/– Senior unsecured debt A A- Talanx Finanz (Luxemburg) S.A. Junior subordinated debt*** BBB+ BBB *Guaranteed by Eureko B.V. **Guaranteed by Swiss Life Holding. ***Guaranteed by Talanx AG.

Topics Europe Reinsurance