SLOVENIA: Sava Re and Triglav companies downgraded one notch by S&P’s, following the recent Slovenia’s long-term rating lowering
According to the recent S&P’s press releases, Slovenia-based insurers Triglav Insurance and Triglav Reinsurance long-term ratings were lowered from ‘A’ to ‘A-‘, while Sava Re’s long-term rating declined to ‘BBB+’ from ‘A-‘. Both downgrading actions are reflecting “the still “high” likelihood, although reduced ability, of the Slovenian government to provide extraordinary support in the event of financial distress”.
The negative outlook reflects the negative outlook on the Republic of Slovenia and S&P’s view of the potential weakening in Triglav’s and Sava Re’s business and financial risk profiles if the operating, economic, and financial environment in Slovenia were to deteriorate further after the rating agency lowered, on August 3, the long-term rating on the Republic of Slovenia to ‘A’ from ‘A+’, and maintained a negative outlook.
On Aug. 7, 2012, Standard & Poor’s Ratings Services lowered to ‘A-‘ from ‘A’ the long-term counterparty credit and insurer financial strength ratings on Slovenia-based Triglav Insurance Co. Ltd. and Triglav Re, Reinsurance. Co. Ltd. The outlook is negative. Also, it lowered its long-term counterparty credit and insurer financial strength ratings On Pozavarovalnica Sava, d.d. (Sava Re) to ‘BBB+’ from ‘A-‘. The outlook is negative.
In accordance with S&P’s criteria for government-related entities (GREs), we continue to consider both Sava Re’s,Triglav Insurance and Triglav Re’s roles to be “important” for the Slovenian government and the link between them to be “strong”.
In addition, the S&P’s releases revealed:
a. Concerning the TRIGLAV ratings
The ratings on both TRIGLAV entities are based on Triglav Group’s credit profile, which we assess at ‘bbb+’, plus one notch of uplift to reflect its GRE status and the “high” likelihood” of extraordinary support from the Slovenian government.
Triglav Group’s ‘bbb+’ credit profile derives from its leading position in the Slovenian insurance market, its strong brand name in the Western Balkans, and its conservative investment strategy. However, the high development risks in the Western Balkans (Triglav’s main area of growth), and its historically modest, although in our view improving, underwriting performance, offset these strengths.
The negative outlook reflects that on the Republic of Slovenia and our view of the potential weakening in Triglav’s business and financial risk profiles if the operating, economic, and financial environment in Slovenia were to deteriorate further.
We will lower the ratings on Triglav by one notch if we were to lower the ratings on the Republic of Slovenia to ‘A-‘ (see “Rating Government-Related Entities: Methodology And Assumptions”), as, under our criteria, support from the sovereign would cease at that level.
We could also lower the ratings on Triglav by one notch if our view of Triglav Insurance and Triglav Re’s role for, and link with, the Slovenian government were to weaken. Finally, we could also lower the ratings on Triglav if its exposure to country and investment risk and level of capital were to significantly increase as a result of the increasingly difficult operating and financial conditions in Slovenia.
We could revise the outlook on Triglav Insurance and Triglav Re to stable if we revised the outlook on the Republic to Slovenia to stable, and if Triglav’s financial and business profiles proved more resilient to the deteriorating operating, macroeconomic, and financial environment in Slovenia than we currently expect in our base-case scenario.
Related Criteria And Research.
b. Corcerning SAVA Re
The ratings on Sava Re, the parent and major operating company of the Sava Re Group, exclusively reflect Sava Re Group’s credit profile, which we assess at ‘bbb+’, without including any uplift deriving from its GRE status or from the “moderately high” likelihood of extraordinary support from the Slovenian government.
Sava Re Group’s credit profile derives from its good competitive position, stemming from a diversified insurance portfolio and strong capitalization. These strengths are offset, however, by Sava Re’s modest underwriting performance and its lack of a strong position in at least one sizable and stable insurance market.
The negative outlook reflects our view that Sava Re’s business and financial risk profiles could potentially weaken if the operating, economic, and financial environments in Slovenia were to deteriorate further.
We could lower the ratings on Sava Re if we see a significant deterioration in its competitive position, earnings, and/or capitalization.
We could revise the outlook to stable if we see signs of recovery in the Slovenian operating, economic, and financial environments, or if Sava Re demonstrates that it is more resilient to the current difficult environment than we currently expect under our base-case scenario.