Standard & Poor’s said today that the court ruling and subsequent acceptance by the German regulator allowing the sale of the Gerling group’s reinsurance operations Gerling-Konzern Globale Ruckversicherungs-AG (GKG; not rated) to private investor Dr. Achim Kann, will have no immediate effect on the ratings on the Gerling group’s primary insurance operations Gerling-Konzern Allgemeine Versicherungs-AG (BB+/Watch Dev/–) and Gerling-Konzern Lebensversicherungs-AG (BB+/Watch Dev/–).
Nevertheless, Standard & Poor’s acknowledges that the successful completion of the transaction will provide substantial balance-sheet relief to the group and could potentially result in an upgrade.
In addition, the sale of GKG has improved the likelihood of securing new potential investors. Gerling’s management is currently in negotiations with a number of potential investors and is considering a new ownership structure. Once investors are identified, and depending on the structure of the deal, this could also have a positive impact on the ratings.
Although a successful completion of the transaction will allow the Gerling group to fully deconsolidate its reinsurance operations from 2003 onward, the group, and in particular GKA, will remain exposed to GKG’s ability to pay outstanding claims on a timely basis. However, GKA made a provision of EUR112 million with regard to the GKG credit risk in 2002. GKA booked EUR1.1 billion reinsurance receivables from GKG in 2002.
As part of a review, Standard & Poor’s will assess the legal protections in place that could justify a segregation of the ratings on GKA and GKL.
In addition, the group is still awaiting approval from other regulators, in particular in the U.K. and the U.S., before closing the sale of GKG. Standard & Poor’s will re-evaluate the financial strength of GKA and GKL in light of recent developments, and expects to resolve the CreditWatch status upon legal completion of the GKG sale, which is expected within the next two weeks.
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