Overview -- Following the Spanish government's decision to privatize insurer Compania Espanola de Seguros de Credito a la Exportacion S.A. (CESCE), we have reassessed the likelihood of CESCE receiving extraordinary government support in the event of financial distress as moderately high instead of high. -- We base this on our view that CESCE will continue to play a very important role for the government, but would have only a limited link with the state. -- CESCE displays good capitalization and a resilient operating performance in a difficult economic environment, but its concentration of exposure in Spain remains a rating constraint. -- We are affirming our 'BBB-' ratings on CESCE. -- The negative outlook reflects that on the Kingdom of Spain. Rating Action On Dec. 12, 2012, Standard & Poor's Ratings Services affirmed its 'BBB-' long-term counterparty credit and financial strength ratings on Spanish insurer Compania Espanola de Seguros de Credito a la Exportacion S.A. (CESCE). The outlook is negative. Rationale The rating actions reflect our reassessment of the likelihood of extraordinary government support for CESCE, in accordance with our criteria for government-related entities (GREs), following the Spanish government's announcement of its plan to privatize the insurer. The Kingdom of Spain (BBB-/Negative/A-3) currently owns a majority 50.25% stake in CESCE, a public-limited insurance company. Besides its traditional trade credit insurance portfolio, CESCE is the exclusive credit insurer of the Spanish government, supporting the expansion of Spain's export business. However, after the planned privatization the company would in our view only have a "limited" link with the government, instead of "strong" previously. As a result, we have changed our view of the likelihood of the government providing extraordinary support to CESCE to "moderately high" from "high". In accordance with our criteria for (GREs), our rating approach is based on our view of CESCE's: -- "Very important" role for the government, owing to its exclusive remit to support the expansion of Spain's export business and the importance of the export credit insurance business to the Spanish economy; and -- "Limited" link to the government, reflecting the government's planned divestment of its majority shareholding (50.25%) in the company and the ongoing privatization process. The ratings on CESCE remain supported by the company's good capitalization, including strong capital adequacy, and resilient operating performance in the currently difficult economic environment in Spain. These strengths are partly offset by the concentration of CESCE's activities in Spain and on a business line that is subject to swings in the economic cycle, as well as the reduced quality of the company's investments. Based on our criteria for country risk, the ratings on CESCE remain constrained by the rating on Spain because the company writes the majority of its business in Spain and most of its assets comprise Spanish debt. Outlook The outlook on CESCE remains negative, reflecting that on the long-term rating on Spain and our view of the potential heightening of country risk for the company. We could lower the ratings on CESCE if we were to lower the rating on Spain, or if there were a significant weakening of CESCE's business or financial risk profile caused by significant decreased revenues, combined ratios clearly exceeding 100%, or a substantial reduction in capital below a good level according to our risk-based capital model. We would revise the outlook on CESCE to stable if the outlook on Spain were revised to stable. Related Criteria And Research All articles listed below are available on RatingsDirect on the Global Credit Portal, unless otherwise stated. -- Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology And Assumptions, June 14, 2011 -- Principles Of Credit Ratings, Feb. 16, 2011 -- Rating Government-Related Entities: Methodology And Assumptions, Dec. 9, 2010 -- Use Of CreditWatch And Outlooks, Sept. 14, 2009 -- Criteria Update: Factoring Country Risk Into Insurer Financial Strength Ratings, Feb. 11, 2003 Ratings List Ratings Affirmed Compania Espanola de Seguros de Credito a la Exportacion S.A. Counterparty Credit Rating BBB-/Negative/-- Financial Strength Rating BBB-/Negative/-- Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.