Earnings Release • Jul 18, 2019
Earnings Release
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Research Update:
July 18, 2019
On July 18, 2019, S&P Global Ratings affirmed its 'A' long-term issuer credit and financial strength ratings on Gjensidige. The outlook is stable.
We also upgraded the RT1 instrument issued in September 2016 to 'BBB', from 'BBB-'.
This rating action follows a review of Gjensidige's hybrid instruments under our revised criteria (see "General Criteria: Hybrid Capital: Methodology And Assumptions," published on July 1, 2019).
The stable outlook on Gjensidige reflects our view that the insurer will maintain capital adequacy at the 'A' level, according to our risk-based capital model. We also expect Gjensidige's competitive position will remain strong and its exposure to investment risk will remain at present levels.
London (44) 20-7176-7991 mark.nicholson @spglobal.com
Jure Kimovec, FRM, CAIA, ERP Frankfurt (49) 69-33-999-190 jure.kimovec @spglobal.com
insurance\_interactive\_europe @spglobal.com
We currently regard downside risk for the ratings over the next 12-24 months as remote, considering Gjensidige's longstanding, strong competitive position in the Norwegian property/casualty (P/C) insurance market and its strong earnings and enterprise risk management (ERM).
We could raise the ratings over the next 12-24 months if:
We base our rating on Gjensidige on its longstanding strong competitive position in the Norwegian P/C insurance market. In Norway, Gjensidige's brand and reputation underpin its leading market share and sustainably strong earnings throughout cycles. Additionally, Gjensidige is growing its business in Denmark, Sweden, and the Baltic countries.
The strong financial risk profile reflects Gjensidige's healthy capitalization and its advanced risk controls. We embed this in our view of its risk exposure as moderately low, even though its investment risk appetite is higher-than-average. Its controls mitigate the risk of seeing higher volatility in investment.
Following the implementation of our revised criteria, our rating on the RT1 notes is now three notches below the long-term issuer credit rating (ICR) on Gjensidige Forsikring:
The rating on these notes was previously one notch lower as we considered the payment risk higher than for the company's other hybrid instruments. We no longer consider the payment risk on these notes to be materially greater than for the company's Tier 2 hybrids, which would also be required to defer coupons upon a breach of Gjensidige's Solvency Capital Requirement (SCR). We view one notch as sufficient to reflect the payment risk on these notes, as well as on the group's other hybrids. In part, we base this on the SCR coverage level in the past year, moderate SCR sensitivity, and management's intent to maintain a healthy SCR. The SCR stood at 248% on March 31, 2019.
We will monitor Gjensidige's SCR coverage and capital plans to assess whether the ICR adequately incorporates the payment risk associated with Gjensidige's hybrid instruments. An unexpected deterioration in the group's regulatory solvency position that is not accompanied by a rating
action, or increased sensitivity to stress, could lead us to lower the rating on the notes by widening the notching between them and the ICR, to ensure the hybrid instrument ratings would follow a measured transition to default.
| Strong |
|---|
| Strong |
| Low risk |
| Strong |
| Strong |
| Moderately low |
| Neutral |
| a |
| Neutral |
| Exceptional |
| 0 |
| A |
*This is influenced by our view of Gjensidige's strong position in the highly profitable Norwegian P/C market.
| To | From | |
|---|---|---|
| Gjensidige | ||
| Junior Subordinated (RT1) | BBB | BBB |
| Gjensidige | |
|---|---|
| Issuer Credit Rating | |
| Local Currency | A/Stable/-- |
| Financial Strength Rating | |
| Local Currency | A/Stable/-- |
| Junior Subordinated | BBB+ |
Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column. Alternatively, call one of the following S&P Global Ratings numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow 7 (495) 783-4009.
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