S&P’s Continues Gerling ‘CreditWatch;’ May Change Ratings

Standard & Poor’s issued a bulletin confirming that the primary insurance entities of Germany’s Gerling insurance group “remain on CreditWatch following further discussions with the group’s executive management.”

The ‘A-‘ long-term counterparty credit and insurer financial strength ratings on both Gerling-Konzern Allgemeine Versicherungs-AG (GKA) and Gerling-Konzern Lebensversicherungs-AG (GKL) have been the subject of S&P’s concern since the end of October, following gerlinks decision to put its reinsurance operations (GKG) into runoff.

The rating agency last reviewed them on Dec. 20, and at that time announced that it had also put the ‘A’ ratings of credit insurance group GERLING NCM Credit and Finance AG (GERLING NCM), core entities of the Gerling Group, “on CreditWatch with developing implications.”

“Standard & Poor’s understands that, in addition to several restructuring initiatives, the Gerling group’s management has a number of options available, including at least one current binding offer, to complete its search for a partner,” stated S&P credit analyst Karin Clemens.

S&P’s indicated that the main reason for its continued review is the ongoing uncertainty concerning the group’s ownership status. It anticipates that a “deal with a suitable partner may enable the group to resolve its ultimate ownership structure,” and is continuing to monitor the progress of ongoing negotiations, “as well as the progress of the restructuring initiatives, and expects to publish updated CreditWatch opinions by the end of January.”

S&P’s said it expected Gerling to keep it informed of the status of negotiations, but Clemens warned that “The absence of a credible binding offer at that time would be likely to result in the ratings on GKA and GKL being lowered by at least two notches.”

“The ratings on GKA and GKL would in any case be likely to remain on CreditWatch with developing implications, reflecting concerns about the group’s regulatory and risk-based capitalization,” the bulletin continued. S&P said it would “assess the likely negative impact on the companies’ prospective business positions as a result of the deterioration in the group’s financial strength,” but added that “even at a lower rating level, there would remain some upside potential should the Gerling group still be able to find a partner that is more highly rated.”

As a further caution S&P’s noted that its ratings “are based on the expectation that the Gerling group will receive regulatory approval for the disposal of its reinsurance operations. The ratings would likely be lowered further in the unlikely event that the Gerling group does not receive regulatory approvals for the sale–and therefore the deconsolidation–of its reinsurance operations from 2003 onward. “

Clemens noted that the higher ratings on GERLING NCM remain on CreditWatch with developing implications pending Standard & Poor’s review of the extent to which the ratings on GERLING NCM are insulated from the concerns relating to the ratings on other members of the Gerling group, and stated that “depending on the outcome of this review, these ratings might remain at the current level.”