S&P Stands Pat on SCOR, Gerling Ratings

September 24, 2002

Standard & Poor’s announced that its ratings on Gerling-Konzern Globale Ruckversicherungs-AG (GKG) and related entities will “remain on CreditWatch with developing implications,” and that its long-term ratings on France’s SCOR and its subsidiaries will remain on “CreditWatch with negative implications.”

S&P put both companies on its CreditWatch following the Sept. 4 announcement that they were in negotiations to sell GKG’s life insurance business, and the majority of its third-party non-life reinsurance activities to SCOR. Last Friday the French reinsurer said it had terminated the talks.

“The absence of an immediate buyer and the continued discussion about the Gerling group’s future strategy with regard to its reinsurance operations, creates substantial strain on GKG’s prospective business and financial flexibility–the ability of companies to source capital relative to requirements. In addition, Standard & Poor’s remains concerned about the adequacy of GKG’s current risk-based capitalization,” stated credit analyst Karin Clemens.

She added, however, that there is some upside potential “should the Gerling group be able to find a buyer for some or all of the legal entities comprising the GKG group in the near future.” Policyholders could also benefit from the transaction, as “the transfer of business to a higher rated counterparty would be positive in terms of the financial strength of the new reinsurer.”

S&P credit analyst Marcus Rivaldi indicated that “Despite the announcement that negotiations had been terminated on Sept. 20, 2002, due to capital market conditions, Standard & Poor’s has maintained the ratings on SCOR on CreditWatch.”

In addition he noted that the rating agency was in “ongoing discussions with SCOR’s management about the group’s capital adequacy position in light of its short- to medium-term growth plans, operating performance improvement expectations, and its ability to fund capital requirements.” This would probably lead to a resolution of any questions about SCOR’s status Rivaldi indicated.

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