S&P Reviews CGU & Norwich Union Merger; Rtgs Revised.Business Editors LONDON--(BUSINESS WIRE)--Feb. 21, 2000 Following the announcement that CGU CGU Conditions Générales d'Utilisation (French) CGU Claremont Graduate University (Claremont, CA) CGU Chang Gung University (Taiwan) CGU Canadian Geophysical Union Group (CGU) and Norwich Union Norwich Union is an insurance company in the UK. It is the biggest life-insurer in the UK, and has a strong position in motor insurance. It is part of the Aviva group, itself created by a merger of Norwich Union and CGU plc in 2000. Group (NU) are intending to merge, Standard & Poor's today affirmed af·firm v. af·firmed, af·firm·ing, af·firms v.tr. 1. To declare positively or firmly; maintain to be true. 2. To support or uphold the validity of; confirm. v.intr. its ratings on U.K.-based CGU Insurance PLC, and Norwich Union Life & Pensions Ltd. The new group would be named CGNU CGNU Crazy Go Nuts University (Homestar Runner) CGNU Commercial Union, General Accident and Norwich Union (insurance group, renamed Aviva) . The ratings on CGU's U.S. nonlife companies have been placed on CreditWatch with developing implications following CGU's announcement that the companies are likely to be disposed dis·pose v. dis·posed, dis·pos·ing, dis·pos·es v.tr. 1. To place or set in a particular order; arrange. 2. of as part of the merger transaction. The ratings on Norwich Union Holdings Ltd., and the New Zealand-based companies have also been placed on CreditWatch with developing implications pending clarification of their role in the new group. All ratings actions on CGU, NU, and related entities are listed below. Major rating factors: -- The proposed merger would create a very strong composite group in the U.K., with a leadership position in nonlife business, and a number-two position in the U.K. life market. This would provide a strong platform for the group to continue to expand its life and asset-management businesses. -- Capitalization capitalization n. 1) the act of counting anticipated earnings and expenses as capital assets (property, equipment, fixtures) for accounting purposes. 2) the amount of anticipated net earnings which hypothetically can be used for conversion into capital assets. is very strong in both the NU and CGU groups of companies, which is not expected to change significantly because the transaction is structured as a merger rather than a sale. -- Earnings will in the short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. be affected by one-off merger costs (estimated by CGNU at GBP GBP In currencies, this is the abbreviation for the British Pound. Notes: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. 350 million US$ 560 million). In the medium-term, earnings are expected to improve as a result of cost synergies Cost Synergy In the context of mergers, cost synergy is the savings in operating costs expected after two companies, who compliment each other's strengths, join. Notes: The savings in operating costs usually come in the form of laying off employees. (estimated by CGNU at GBP250 million per year). Standard & Poor's has based its actions on the belief that the proposed merger will proceed smoothly and to a successful conclusion. Bob Scott
The ratings of the U.K., Canadian Canadian (kənā`dēən), river, 906 mi (1,458 km) long, rising in NE New Mexico. and flowing E across N Texas and central Oklahoma into the Arkansas River in E Oklahoma. , French, and Australian Australian pertaining to or originating in Australia. Australian bat lyssavirus disease see Australian bat lyssavirus disease. Australian cattle dog a medium-sized, compact working dog used for control of cattle. businesses have been affirmed as a reflection that the companies are expected to remain within the merged group with a broadly similar role. Nonlife businesses are generally regarded by Standard & Poor's as not being core to the CGNU group outside of the U.K., but the ratings on the French, Canadian, and Australian businesses will be maintained to reflect their strategic role and stand-alone characteristics. The ratings of the U.S. companies have been placed on CreditWatch with developing implications, with the final rating being dependent on the stand-alone characteristics of the U.S. group, together with the rating of the acquiring company. The U.S. life business, Commercial Union Life Insurance Co. of America is unaffected. Norwich Union Holdings Ltd.'s rating is placed on CreditWatch developing pending clarification of the new group's detailed structure. Management would prefer to retain both New Zealand-based companies within the CGNU group. However, with each company having a market leadership position and near 20% market share, the competition authorities may prompt the sale, or partial sale, of one of the businesses. The short-term ratings on Norwich Union PLC have been placed on CreditWatch with positive implications reflecting the increased diversification Diversification A risk management technique that mixes a wide variety of investments within a portfolio. It is designed to minimize the impact of any one security on overall portfolio performance. Notes: Diversification is possibly the greatest way to reduce the risk. of earnings under the CGNU group. The transaction is expected to be finalized See finalization. in June, subject to shareholder, regulatory, and legal approvals. Standard & Poor's would seek to resolve the CreditWatch actions in line with this expected completion date. However, in recognition of the significance of this move to the rest of the European insurance market, there may be a counterbid for either CGU or NU. If the transaction proceeds smoothly, further consolidation in the U.K. market could be prompted, Standard & Poor's said. -- CreditWire
RATINGS AFFIRMED; OUTLOOK STABLE Financial strength and counterparty
credit ratings:
CGU Insurance PLC AA
CGU International Insurance PLC AA
CGU Life Assurance Ltd. AA
CGU Linked Life Assurance Ltd. AA
Commercial Union Life Assurance Co. Ltd. AA
CGU Insurance Co. of Canada (and related entities)
AA
Commercial Union Life Insurance Co. of America
A
Abeille Assurances AA
Abeille Vie AA
CGU Courtage AA
CGU Insurance Ltd. AA
Swann Insurance Australia Pty. Ltd. AA
CGU Lenders Mortgage Insurance Ltd.. AA
Norwich Union Life & Pensions Ltd. AA
Norwich Union Life Australia Ltd. A
Financial strength ratings
London & Edinburgh Insurance Co. Ltd. A
Swann Insurance Australia Pty. Ltd. (New Zealand Branch))
AA
CGU Insurance Ltd. (New Zealand branch) AA
Commercial Paper Rating
CGU PLC (guaranteed by CGU International Insurance PLC)
A-1+
RATINGS PLACED ON CREDITWATCH WITH DEVELOPING IMPLICATIONS:
Insurance financial strength and counterparty credit ratings
CGU Insurance Co. of America (and related entities)
AA
New Zealand Insurance Ltd. AA
State Insurance Ltd. AA
Counterparty credit ratings
Norwich Union Holdings Ltd. A
RATINGS PLACED ON CREDITWATCH WITH POSITIVE IMPLICATIONS:
Counterparty credit and commercial paper rating
Norwich Union PLC A-1
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