S&P Affirms Gerling NCM Credit and Finance Ratings

Standard & Poor’s Ratings Services announced that it has affirmed its ‘A’ counterparty credit and insurer financial strength ratings on the core operating entities of Germany-based insurance group, Gerling NCM Credit and Finance AG (collectively Gerling NCM) with a stable out look. It has also removed the ratings from CreditWatch where they were initially placed on Dec. 20, 2002.

“The affirmation follows today’s announcement of the completion of the sale of Gerling NCM to various parties. Swiss Reinsurance Co. (Swiss Re; AA/Stable/A-1+) now owns 47.5% and Deutsche Bank AG (AA-/Negative/A-1+) holds 35.32%,” stated S&P credit analyst Jorg Ritthaler. S&P noted that “both major shareholders have also committed to recapitalize Gerling NCM by underwriting a subordinated notes issue up to EUR110 million [$124.3 million].”

It also noted that Gerling NCM has announced “a partnership with Compania Espanola de Seguros y Reaseguros de Credito y Caucion S.A. (A+/Stable/–), which has agreed to purchase 7% of Gerling NCM, and with Seguros Catalana Occidente S.A. (BBBpi/–/–), which has agreed to purchase 0.14% of Gerling NCM and has an option to acquire an additional 7.94%. In addition, the company will be renamed Atradius as part of the migration from the Gerling group.”

S&P said “The ratings reflect the group’s strong capitalization, strong financial flexibility (defined as the ability to source capital relative to requirements), and very strong business position. Offsetting factors are Gerling NCM’s operating underperformance in recent years, dependence on reinsurance, and a risk profile concentrated mainly in the trade credit insurance industry, which is mature and subject to significant volatility.

“Operating performance is expected to improve significantly, with a combined ratio of about 98% and ROR of more than 10% expected in 2003. Cost and tax synergies are also expected over the next two years, arising from the transformation of Gerling NCM’s European credit insurance activities into a single legal entity or carrier. This single European carrier will be based in The Netherlands and the holding company will also be re-domiciled to The Netherlands.”

The report also said Gerling NCM’s capitalization “will benefit from hybrid equity, to be issued in November 2003, to which Swiss Re and Deutsche Bank have already committed.”

Ritthaler indicated that “Financial flexibility is expected to remain strong, with Swiss Re remaining the major shareholder, which will significantly influence Gerling NCM’s corporate governance before any IPO,” which he doesn’t see happening before 2005.