S&P Raises Czech Insurer’s Ratings to ‘BBB-‘

November 20, 2002

Standard & Poor’s Ratings Services announced that, following a review, it has raised its long-term local currency counterparty credit and insurer financial strength ratings on Czech Republic-based composite insurance company Ceska Pojistovna a.s. (Ceska) to ‘BBB-‘ from ‘BB+’, with a stable outlook.

It also raised its senior unsecured debt rating on Ceska’s Czech koruna (Ckr) 4.0 billion ($132.9 million) floating-rate bonds to ‘BB+’ from ‘BB-‘.

“The ratings were raised based on Ceska’s strong operating performance, strong business position, and good capitalization,” stated S&P credit analyst Ashley Gill. “Factors offsetting these strengths are Ceska’s reliance on the Czech insurance market and exposure of its asset base to concentration risk and noninvestment-grade issuers.”

S&P noted that “Ceska is the largest composite insurance company in the Czech Republic, with a market share of 39% at year-end 2001,” but it also indicated that it does not rate the company’s majority shareholder Cespo B.V. nor its ultimate parent, PPF Group N.V.

“Ceska benefits from a strong business position,” said S&P. “The company’s competitive advantage is achieved through a substantial sales network, enhanced by other members of the Ceska Pojistovna group. This strength is partially offset by Ceska’s reliance on the Czech insurance market, which, historically, has been volatile and subject to catastrophe risk. ”

Ceska has reported an average return on equity over the last five years of 35 percent, S&P indicated, and has increased its capital adequacy to about 120% of that required using S&P’s risk-based capital model. It added that “The company’s risk control was demonstrated following the recent flooding in the Czech Republic, which, after reinsurance recoveries, will have limited impact on capitalization.”

“Historically, Ceska’s investment portfolio has been of low credit quality and has included some significant investment concentrations,” Gill stated. “Although the company is placing greater emphasis on credit quality control, the overall portfolio mix exposes it to counterparty failure.” S&P nevertheless expects Ceska to retain its “dominant market position for the foreseeable future.”

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