S&P Affirms PZU’s ‘A-‘ Rating; Revises Outlook to ‘Negative’ After Firing of CEO

Standard & Poor’s Ratings Services has revised its outlook on Polish non-life insurer Powszechny Zaklad Ubezpieczen S.A. (PZU S.A.) and life insurer Powszechny Zaklad Ubezpieczen na Zycie S.A. (PZU Zycie), core entities of the composite insurance group PZU, to negative from stable. However, S&P affirmed its ‘A-‘ long-term counterparty credit and insurer financial strength ratings on PZU.

“The outlook revision follows the unexpected dismissal of Cezary Stypulkowski, former CEO of PZU since 2003, and what this means for financial strategies and restructuring plans,” noted S&P credit analyst Tatiana Grineva.

Stypulkowski is the latest top level manager to be dismissed from his post in a majority state owned company following the triumph of the Center-right Law and Justice party (PiS) last October. The party, led by two identical twins – Lech and Jaroslaw Kaczynski – is seen as more nationalistic and less pro-European. Eureko, the Dutch financial services group has almost a 33 percent stake in PZU (it lacks one share – See IJ Website Jan. 26). Eureko has been battling various Polish governments over PZU since 2001.

S&P said: “The uncertainty surrounding the future direction of PZU and the impact of the new CEO on the group and senior management team supports the negative outlook. Even if the new management remains fully committed to the reforms initiated by PZU at the end of the past year, and confirms their intention to maintain the strategic direction unchanged, the risk remains of political intervention into the operations of PZU at any time. The consequences of which may be disruptive and unpredictable.”

S&P indicated, however that if its “concerns are alleviated, the outlook will be revised to stable, subject to meeting S&P’s “additional expectations,” which the rating agency then listed as follows:
–PZU is expected to continue to demonstrate very strong operating performance through the cycle, with an average net combined ratio of 95 percent and ROE well in excess of 15 percent; and
–PZU is expected to maintain strong capitalization, with capital adequacy within the ‘AA’ range (according to Standard & Poor’s risk-based capital model), strong quality of capital, sufficient reinsurance protection, and adequate reserving.

“The ratings could be lowered if the investment strategy, capital management or dividend policy changed, and continuation of the modernization and restructuring project initiated in 2004 by the former CEO is halted,” Grineva added.