S&P Lowers Ratings on Two Gerling Divisions, Outlook for Group is Negative

October 10, 2002

Yesterday was not a good one for German insurers. In addition to lowering its ratings on Allianz (see previous article), Standard & Poor’s also announced that it has lowered its long-term counterparty credit and insurer financial strength ratings on Gerling-Konzern Allgemeine Versicherungs-AG (GKA) and Gerling-Konzern Lebensversicherungs-AG (GKL) to single-‘A’-minus from single-‘A’, with a “developing” outlook, and has revised its previous CreditWatch implications on Gerling-Konzern Globale Ruckversicherungs-AG (GKG) and the other legal entities comprising the GKG group, Gerling’s reinsurance operations, to negative from developing.

On Sept. 4 S&P announced that it had lowered GKG’s ratings to triple-‘B’ from single-‘A’ minus following the group’s entering into discussions with SCOR concerning the sale of parts of the group to the French reinsurer. SCOR terminated the discussions less than three weeks later (See IJ Website Sept.20).

“The downgrade of GKA and GKL reflects the recent deterioration of their capital position, which–as for many of their peers–has been largely precipitated by the persistent falls in European equity markets, to levels in line with the ratings rather than above,” stated S&P credit analyst Christian Dinesen.

He added that “the sources of restorative capital available to GKA and GKL are restricted by their status as privately owned entities, thereby hindering their financial flexibility (that is, their ability to source capital relative to capital requirements). Although both entities are experiencing noticeable underlying technical improvement, this is not sufficient to restore capital to its previous levels in the short term.”

The rating agency expressed concern about the overall future of the Gerling Group, and the uncertainty presently surrounding its capitalization and ownership.

Dinesen stated that there now existed only a “remote possibility that a strategic investor will be found for the majority of the rated legal entities comprising the GKG group.” Whatever solution is eventually found, Dinesen indicated that it includes the possibility of a discontinuation of certain business lines. “A triple-‘B’ rating is the highest rating that may be afforded to any legal entity that has the prospect of not writing any new business,” he stated.

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