S&P Raises Finland’s Pohjola to ‘A+’

Standard & Poor’s Ratings Services announced that it has raised its counterparty credit and insurer financial strength ratings on Finland-based Pohjola Non-life Insurance Co. Ltd. two notches to “A+” from “A-.” S&P also removed the ratings from CreditWatch with positive implications, where they had been placed on Sept. 12, 2005. It said, however, that the outlook is negative.

“The rating action follows the Finnish regulatory and competition authorities approval yesterday of Finland-based OKO Bank’s (OKO Osuuspankkien Keskuspankki Oyj) (AA-/Negative/A-1+) acquisition of a majority shareholding in Pohjola,” said S&P. “The upgrade reflects that Standard & Poor’s views Pohjola as a strategically important entity within the cooperative OP Bank group, in which OKO Bank is the central institution,” stated S&P credit analyst Ralf Bender.

S&P also noted that in line with its criteria for a strategically important subsidiary, Pohjola’s rating is capped at one notch lower than the rating on OKO Bank. “The strategically important status reflects the size of the transaction and the reasonable fit of Pohjola into the wider bancassurance group,” Bender indicated. “Product mixes fit well, with Pohjola’s life and asset-management functions supplementing the bank’s relatively smaller market share compared with its main businesses, and adding a strong non-life business to the new group.”

S&P also said: “The joint life and asset-management functions are likely to allow the group to draw synergies. Customer groups complement each other well, with Pohjola more active in cities, while OKO Bank is stronger in rural areas. Moreover, Pohjola is expected to benefit from the integration into the wider OP Bank group in terms of distribution power, access to a wider customer base, and reduced earnings volatility within the diversified bancassurance group.”

Commenting on the negative outlook, S&P said it “mirrors the negative outlook on OKO Bank. This reflects the impact of the higher earnings volatility of the non-life insurance operations on the group’s overall risk profile; the uncertainties inherent in the integration of Pohjola into the OP Bank group structure; and the initial drop in the group’s capital strength.

“On a stand-alone basis, Standard & Poor’s expects Pohjola to remain at least strongly capitalized. The quality of the operating result is expected to remain sound at an underwriting level, with a combined ratio of less than 100 percent at least based on local GAAP or 95 percent on an IFRS basis expected for 2005. Standard & Poor’s expects Pohjola to maintain its strong competitive position in the Finnish market, but to remain dependent on the market’s underwriting profitability.”