S&P Affirms Fortis Corporate ‘A-‘ Ratings; Outlook Negative

April 6, 2009

Standard & Poor’s Ratings Services has affirmed its ‘A-‘ counterparty credit and financial strength ratings on Netherlands-based commercial lines insurer Fortis Corporate Insurance N.V. (FCI). S&P has also removed these ratings from CreditWatch with developing implications, where they were placed on Oct. 6, 2008. The outlookon them, however, is negative.

“The affirmation reflects FCI’s strong, albeit weakened, capitalization and good competitive position in its specialty markets,” stated credit analyst Marie-Aude Salinas.

S&P noted, however, that “offsetting these is pressure on operating performance, and uncertainty about the company’s future ownership and strategy. Our ratings do not include any explicit uplift from the current owner, the Dutch state, due to the temporary nature of this ownership; the state intends to sell FCI in the near term.”

Salinas added: “The negative outlook reflects pressure on FCI’s operating performance, the impact of the disentanglement from Fortis on its business position, and uncertainty about the future strategy.”

S&P said it expects “FCI’s re-underwriting to slow down its exposure growth and to translate into improved operating performance in 2009 and 2010. Consequently, we expect GPW to decline 10 percent and the net combined ratio to recover to 100 percent in 2009. Underwriting earnings will suffer from higher reinsurance costs, and costs due to the restructuring. We expect ROE to recover to 15 percent and ROR to 10 percent in 2009. We also expect FCI to restore strong capital adequacy by 2010.

We may consider downgrading FCI if its sale process is prolonged, if its misses our profitability expectations in 2009, if capital adequacy further deteriorates, or if 2009 witnesses a weakening of FCI’s competitive position. We could consider revising the outlook to stable if FCI successfully withstands conditions during its transformational year over 2009, while maintaining its business position, and if it significantly exceeds the profitability and capital adequacy expectations above.”

S&P added that it will continue to “closely monitor developments in FCI’s future ownership over the coming months and the potential impact on FCI’s ratings.”

Source: Standard & Poor’s – www.standardandpoors.com

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