S&P Reiterates Concerns on Gerling

February 7, 2003

Standard & Poor’s Ratings Services restated its position that its ‘BBB’ long-term counterparty credit and insurer financial strength ratings on Gerling-Konzern Allgemeine Versicherungs-AG (GKA) and Gerling-Konzern Lebensversicherungs-AG (GKL)–the primary insurance operations of Germany’s Gerling insurance group–“remain on CreditWatch with developing implications, where they were placed on Oct. 29, 2002.”

It also said that the ‘A’ long-term counterparty credit and insurer financial strength ratings on the core entities of the German-based credit insurance group GERLING NCM Credit and Finance AG (collectively GERLING NCM) “remain on CreditWatch with negative implications, where they were placed on Feb. 3, 2002.”

S&P made the announcement following reports “that the Gerling group might not receive regulatory approval for the sale of its reinsurance operations (Gerling-Konzern Globale Ruckversicherungs-AG; GKG) to private investor Dr. Achim Kann.” S&P said that Gerling’s management had indicated that regulators have not yet made any formal announcement, but that a decision is expected in early March. “Discussions are ongoing between Dr. Kann and Castlewood Holdings, which already has a significant involvement in the run-off of GKG’s non-U.S. and non-U.K. businesses,” said the bulletin.
“Standard & Poor’s expects Gerling management’s ability to find a suitable buyer for its primary insurance operations to be significantly reduced as long as its reinsurance business forms part of the group,” stated S&P credit analyst Karin Clemens. “The group’s ability to meet regulatory solvency requirements is also likely to be challenged under such a scenario, particularly because management has already made extensive use of its main sources of financial flexibility (that is, a company’s ability to source capital relative to its needs).”

S&P said it would continue discussions with Gerling’s management and “will give updated information on the CreditWatch placement following an assessment of the implications of ongoing developments on the financial strength of GKA, GKL, and GERLING NCM.”

It warned that “failure to find a new owner for the group in the medium term, or failure to complete the disposal of its reinsurance operations in the short term, would most likely result in the ratings on GKA and GKL being lowered, possibly to the ‘BB’ category,” as detailed in an earlier press release. Clemens noted that “If the ratings on other Gerling group entities are lowered, the ratings on GERLING NCM might also be lowered;” however, she also indicated that, “The ratings might be raised if Gerling management succeeds in finding a new ultimate ownership structure, particularly if the deal involves a strongly rated controlling shareholder.”

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