Converium on watch positive

Standard & Poor’s Ratings Services recently placed its ‘BBB+’ long-term counterparty credit and insurer financial strength ratings on Switzerland-based reinsurer Converium AG, and its ‘BBB+’ long-term insurer financial strength ratings on guaranteed operating entities Converium Rckversicherung (Deutschland) AG and Converium Insurance (U.K.) Ltd., on CreditWatch with positive implications. At the same time, S&Ps says it has placed its ‘BB+’ long-term counterparty credit rating on U.S.-based holding company Converium Holdings (North America) Inc. (CHNA) on CreditWatch positive. S&P’s has also affirmed its ‘R’ long-term counterparty credit and insurer financial strength ratings on Converium Reinsurance (North America) Inc. (CRNA).The CreditWatch placement reflects the Converium group’s announcement on Oct. 17 that it has signed a definitive agreement to sell its North American operations, including CHNA and CRNA, to U.S.-based National Indemnity Co. (NICO; AAA/Stable/–).”We believe the transaction will enable Converium to achieve a clean-cut sale, without guarantees and seasoning agreements, to a reputable buyer whose new ownership does not disadvantage policy- or debtholders,” Standard & Poor’s credit analyst Marcus Rivaldi says. The transaction is subject to regulatory approvals and customary closing conditions.The CreditWatch listing also indicates there is a higher probability that Converium will in the short term successfully settle with regulators in respect of transactions subject to regulatory inquiries at a cost that is not material, according to the ratings agency. When the achievement of such a settlement becomes certain, S&P’s says it will raise its counterparty credit and insurer financial strength ratings on Converium AG and its guaranteed operating entities to ‘A-‘ and remove the ratings from CreditWatch.The CreditWatch status of CHNA reflects its potential ownership by a group rated significantly higher than Converium. However, S&P’s says that positive movement on the rating will be constrained by CHNA’s likely nonstrategic status to NICO. S&P’s says there is the potential for regulatory constraints currently in place at CRNA to be eased upon the closing of the transaction. In addition, the ratings agency says that CHNA and its $200 million 7.125% senior notes, due Oct. 15, 2023, will benefit from the implied support of NICO’s enhanced financial strength. The upstreaming of funds from CRNA to CHNA currently remains effectively blocked, with any movement requiring regulatory approval due to CRNA’s present negative earned surplus position and features of CRNA’s Letter of Understanding with the Connecticut Insurance Department, S&P’s reports.