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Assigns 'AA+' Ratings to EULER Group; Otlk Stable.

LONDON--(BUSINESS WIRE)--Standard & Poor's--

July 6, 1999-- Standard & Poor's today assigned its double-'A'-plus long-term counterparty credit and insurer financial strength ratings to the following key operating companies of the EULER group, the leading global credit insurance group: EULER-SFAC, EULER Trade Indemnity PLC, EULER-COBAC Belgium S.A., EULER SIAC SpA, and American Credit Indemnity Co.--ratings on the latter are based on explicit support from EULER SFAC. The outlook is stable. Standard & Poor's also assigned its double-'A'-plus insurer financial strength rating to EULER International, guaranteed by EULER SFAC.

The ratings are based on the group's strategic importance to its ultimate parent, Allianz AG (triple-'A'/Stable/--), its leading business position in each of its major markets, its extremely strong capitalization, its clear management strategy, and its strong operational performance--although the more recently acquired companies will depress group results pending their full integration into the group.

Major rating factors:

-- Strategic importance to Allianz. EULER group's relation to its ultimate parent is one of strategic importance. Allianz has had a significant interest in credit insurance since 1996, when it acquired majority control of Hermes, and following its acquisition of AGF (and thereby majority control of EULER) in 1998, it now controls over 40% of the global credit insurance market. This presence is an important part of Allianz's strategy to become the leading global commercial lines insurer.

-- Leading business position. EULER group is, through its subsidiaries, the leading domestic credit insurer in France. It is also number one in the U.K., Italy, North America, and Belgium, with rapidly developing export credit business internationally. It also has a cooperation agreement with Hermes in Germany, and it is expected that, over time, a strategic relationship with Hermes may be formed. This position gives EULER group unrivaled coverage of both risks and markets, both currently and prospectively, and will clearly differentiate it from other credit insurers.

-- Extremely strong capitalization. EULER-SFAC is the group's principal source of capital strength, although capital is managed through the EULER holding company so that subsidiary companies are capitalized sufficiently to satisfy market security requirements. On a consolidated basis, capital adequacy was about 200% in 1998, as measured by Standard & Poor's risk-based capital model.

-- Clear management strategy. EULER group's strategy originated after SFAC, which had successfully developed a very strong position in its domestic market, began to concentrate on pursuing growth opportunities outside France. A holding company was established, which has become EULER Holding, with management having a clear mandate to utilize EULER's extremely strong capital base in the acquisition of leading players in other markets, as well as through organic growth. This has been achieved while maintaining the overall profitability of the group. Through the group 'directoire'--and through a variety of integration programs involving information technology (IT), exchange of personnel, and reinsurance--management strategy will continue to be clearly disseminated.

-- Strong operational performance. EULER group has strong earnings, which are expected to remain relatively stable throughout underwriting cycles, as a result of the geographical diversity of the group's business units. EULER SFAC is the most profitable member of the group, achieving returns on revenue in excess of 50% in 1997 and 1998 because of its strong leadership of the French domestic credit insurance market, excellent risk underwriting controls, and low net expenses when reinsurance commission and fee income are accounted for. Other group companies have had more volatile results, and suffered serious losses in the early 1990s as a result of ill-judged diversification out of their core commercial credit businesses. Strong management by EULER group, superior IT capabilities, and commercial advantages gained as a result of membership of EULER group should allow all group members to achieve higher profitability in future.


The group's business position is expected to remain excellent. Export business will be particularly enhanced by the launch of EULER International. Cooperation with Hermes will continue, notably by means of joint ventures in virgin territories and database access.

Earnings will remain strong, underpinned by strong performance by EULER-SFAC in 1999. Weaker earnings from more recently acquired group companies may impact on overall group performance as the process of integration continues, however. Loss ratios may also increase in 2000 and 2001 if Year 2000 issues lead to a higher incidence of corporate insolvency, although the group's underwriting controls and reinsurance should protect the result. Over the medium term, IT integration across the group is expected to reduce the group's cost base and enhance its competitive advantage, Standard & Poor's said.---CreditWire
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Publication:Business Wire
Geographic Code:4EUGE
Date:Jul 6, 1999
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