Standard & Poor’s Ratings Services commented on the CreditWatch status of Germany-based credit insurance company Gerling NCM Credit and Finance AG (Gerling NCM), reflecting the impact of its new shareholder structure.
This follows the May 7 announcement that Gerling-Konzern Versicherungs-Beteiligungs-AG (GKB) has reached an agreement to sell most of its 55.9 percent stake in Gerling NCM to various parties, including Swiss Reinsurance Co. (Swiss Re; AA+/Negative/A-1+) and Deutsche Bank AG (AA-/Negative/A-1+).
The ‘A’ long-term counterparty credit and insurer financial strength ratings on Nederlandsche Credietvertzekering Maatschappij N.V., Gerling NCM Credit Insurance Inc., Gerling Namur Assurances du Credit S.A., Gerling-Konzern Speziale Kreditversicherungs-AG, and Namur Re S.A. remain on CreditWatch with negative implications. These ratings were initially placed on CreditWatch with developing implications on Dec. 20, 2002, and the implications were revised to negative on Feb. 3, 2003.
“Once the sale completes and the planned recapitalization of Gerling NCM by Swiss Re and Deutsche Bank via the issuance of approximately EUR100 million in subordinated notes takes place, the ratings on Gerling NCM’s core operating entities are expected to be removed from CreditWatch and affirmed, and a stable outlook assigned. This is expected to be achieved during August 2003,” said S&P credit analyst Tatiana Grineva.
The rating affirmation would reflect the group’s strong capitalization, strong financial flexibility (defined as the ability to source capital relative to requirements), and strong business position. Offsetting factors would be Gerling NCM’s operating underperformance in recent years, dependence on reinsurance, and a risk profile concentrated mainly in the trade credit insurance industry, which is mature and subject to significant volatility.
The stable outlook would incorporate the following expectations:
Operating performance, having been adversely affected in 2002 by exceptional items and investment impairments, is expected to improve, with a combined ratio of about 98 percent in 2003 and ROR of more than 10 percent. Significant cost synergies are expected over the next two years, including those arising from the transformation of Gerling NCM’s European credit insurance activities into a single legal entity/carrier.
Capitalization and financial flexibility are expected to remain strong, with Swiss Re remaining the major shareholder and a significant influence on Gerling NCM’s corporate governance before any IPO, which is now unlikely before 2005.
Integration of the group’s various credit rating and IT systems is expected to be finalized in 2004.
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