S&P Raises Gerling IFS Ratings to ‘A-‘ / Debt Ratings to ‘BBB’

June 21, 2005

Standard & Poor’s Ratings Services announced that it has raised its long-term counterparty credit and insurer financial strength ratings on German P/C insurer Gerling-Konzern Allgemeine Versicherungs-AG (GKA) to “A-” from “BBB+.” S&P also raised the long-term debt rating on the unsecured subordinated fixed-to-floating-rate notes issued by GKA to “BBB” from “BBB-“, and gave the ratings a stable outlook.

“The upgrade reflects GKA’s further improved operating performance, its resilient competitive position, and strong capitalization, backed by low investment risk and its declining exposure to GLOBALE R├╝ckversicherungs-AG (GLOBALE RE; not rated),” stated S&P credit analyst Hiltrud Besgen.

The rating agency, however, cited “GKA’s potentially constrained financial flexibility (defined as the ability to source capital relative to capital requirements) and its dependence on the German property/casualty market,” as partially offsetting these strengths.

“The stable outlook reflects Standard & Poor’s expectation that GKA will demonstrate strong operating performance throughout the cycle,” Besgen noted. S&P said the “recent improvement in operating performance relates to improved risk management and strong underwriting discipline rather than the combination of a cyclical recovery in premium rates and the low-severity loss environment.

“This is expected to be evidenced by a net combined ratio of about 98 percent in 2005 and 2006, and a ROR of at least 7 percent. GKA’s competitive position is expected to remain strong, as the group benefits from the continued support of its key customers. In addition, GKA will profitably expand its commercial lines business. Overall, Standard & Poor’s expects gross premiums written to increase to about 2.5 billion to 2.6 billion euros [$3 billion to $3.14 billion] in 2005. Capitalization will remain comfortably strong.”

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