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Standard & Poor’s Ratings Services says that the primary insurance entities of Germany-based 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 Gerling-Konzern Allgemeine Versicherungs-AG (GKA) and Gerling-Konzern Lebensversicherungs-AG (GKL) remain on CreditWatch with developing implications, where they were placed on

  • October 29, 2002. Standard & Poor’s last reviewed these CreditWatch placements on December 20, 2002.

    In addition, the A long-term counterparty credit and insurer financial strength ratings on the core entities of Germany-based credit insurance group Gerling NCM Credit and Finance AG (Gerling NCM) remain on CreditWatch with developing implications, where they were placed on December 20, 2002.

    “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,” says Standard & Poor’s credit analyst Karin Clemens.

    Finding a suitable partner may enable the group to resolve its ultimate ownership structure. Standard & Poor’s will closely monitor the ongoing negotiations as well as the progress of the restructuring initiatives, and expects to publish updated CreditWatch opinions by the end of January. Standard & Poor’s expects to be updated by Gerling’s management by that time as to the status of the available options. “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,” says Clemens.

    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 capitalisation. In addition, Standard & Poor’s will assess the likely negative impact on the companies’ prospective business positions as a result of the deterioration in the group’s financial strength. Nevertheless, 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.

    All of the ratings on the group 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.

    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. “Depending on the outcome of this review, these ratings might remain at the current level,” adds Clemens.