S&P Rates Polish Insurer as Stable

July 10, 2008

Standard & Poor’s Ratings Services revised its outlook on non-life insurer Powszechny Zaklad Ubezpieczen S.A. and life insurer Powszechny Zaklad Ubezpieczen na Zycie S.A., core entities of Poland-based composite insurance group PZU, to stable from negative.

At the same time, the ‘A-‘ long-term counterparty credit and insurer financial strength ratings were affirmed.

S&P said the ratings are supported by the group’s “strong competitive position, very strong operating performance, and strong capitalization.”

However, those factors are offset by the risk associated with a restructuring program initiated in 2005 and PZU’s limited ability to invest in assets of appropriate duration or stronger credit quality for the life insurance liabilities, according to the rating agency.

“We consider that the risk of major shareholder intervention in the running of PZU’s operations has fallen,” said Standard & Poor’s credit analyst Charis Adu-Kwapong. “The Polish government is PZU’s largest shareholder, and it is placing an increasing emphasis on market-oriented reform. It has also adopted a more-cooperative tone in the ongoing negotiations to resolve the ownership dispute with Eureko.”

Clear evidence of progress in implementing key aspects of the modernization program, with execution supported by the major shareholder, could result in the outlook being revised to positive, S&P said.

Conversely, the outlook may be revised to negative if capital management or the dividend policy change and if management is not allowed to implement key aspects of the modernization and restructuring strategy initiated in 2005. Negative rating action could also result if Standard & Poor’s believes major shareholder intervention is proving detrimental to the company’s operations.

Source: Standard & Poor’s

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