S&P Raises Euler Hermes Ratings to ‘AA-‘ w/ Negative Outlook

Standard & Poor’s Ratings Services announced that it has raised its long-term counterparty credit and insurer financial strength ratings on the Core operating subsidiaries of the French credit insurance group Euler Hermes (EH) to “AA-” from “A+.”

S&P also raised its long-term insurer financial strength rating on EH’s guaranteed subsidiary, Netherlands-based Euler Hermes Kredietverzekering N.V., to “AA-” from “‘A+.” The outlook on all the entities is negative.

“The rating on Euler Hermes Kredietverzekering N.V. is based on guarantees provided by Belgium-based Euler Hermes Credit Insurance Belgium S.A. (N.V.), and therefore reflects the ratings of the guarantor,” said S&P. “Euler Hermes U.K. PLC is now regarded as a Core subsidiary of EH, although it currently benefits from a guarantee provided by France-based Euler Hermes SFAC.”

S&P credit analyst Tatiana Grineva indicated: “The upgrade has been driven by continued earnings outperformance and improved capitalization. Over the past two years, EH has demonstrated that it can sustain its very strong operating performance despite the continued economic slowdown and a high level of insolvencies worldwide in 2003 and 2004, and has consistently exceeded Standard & Poor’s expectations during this period.”

S&P also noted: “The group has also strengthened its capitalization to a very strong (‘AA’) level through earnings retention and by divesting Eurofactor–the leading factoring company in France–thereby unlocking a substantial capital investment from what Standard & Poor’s considered to be an ancillary activity.

“The ratings on EH’s Core operating entities also factor in the group’s very strong competitive position and financial flexibility, as well as EH’s strategic importance to the Allianz group (Allianz).”

The report said, however, that “EH’s public ratings do not benefit from any group support, however, since the ratings are capped by those on the Allianz group (main entities are rated ‘AA-‘/Negative/–).” S&P also indicated that the “ratings continue to be partly offset by a significant reliance on reinsurance capacity.

“The negative outlook on EH’s Core subsidiaries reflects that on Allianz, since the ratings on EH’s subsidiaries are now equalized with those on Allianz’s Core operating subsidiaries.”

S&P said it “expects EH to maintain its very strong operating performance, with key ratios expected to be similar in 2005. Net income is expected to exceed 150 million euros ($187 million). Capitalization is also expected to be maintained within the ‘AA’ range, and quality of capital is expected to remain very strong.”

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