S&P Lowers Skandia Ratings to ‘A-‘

January 30, 2006

Standard & Poor’s Ratings Services announced that it has lowered its long-term counterparty credit rating on Swedish long-term savings provider Skandia Insurance Co. Ltd. to ‘A-‘ from ‘A’, and its senior unsecured debt rating to ‘BBB+’ from ‘A-‘. S&P also said it has removed both ratings from CreditWatch, where they had been placed with negative implications on Sept. 5, 2005. The outlook, however, is negative.

“The rating actions follow the announcement on Jan. 26, 2006, that Old Mutual PLC’s offer for Skandia is now unconditional, and reflect our concerns over the impact of the acquisition on Skandia’s risk profile, including the higher financial leverage at Old Mutual,” stated S&P credit analyst Mark Button (See IJ Website, Jan. 27).

S&P noted: “The ‘A-‘ counterparty credit rating on Skandia reflects the company’s strong, internationally diverse position in unit-linked life assurance; strong capitalization; robust balance sheet liquidity; and conservative investment strategy.

“Offsetting factors are the Skandia group’s poor recent earnings performance, negative operating cash flows, and concentrated business profile.

“The negative outlook reflects the uncertainty surrounding Skandia’s prospective growth, cash flow and capitalization under Old Mutual’s ownership, and the execution risks for Old Mutual of integrating an acquisition resulting from a hostile bid.”

S&P explained that it “is concerned about the ability of Old Mutual to retain key staff at Skandia and the potential adverse impact on sales and earnings, particularly in the Nordic region, following the prolonged bid process and change in ownership.”

The rating agency said it “will look to discuss these issues with Skandia once a new board is appointed and Old Mutual’s business and financial plans for Skandia are approved.” However, it also warned that, “a deterioration in Skandia’s cash flow position or capitalization owing to aggressive growth or dividend plans could result in the ratings being lowered. Conversely, a continuation of the improving stand-alone fundamentals of Skandia could result in the outlook being revised to stable.”

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