-- On Dec. 11, 2012, Pozavarovalnica Sava, d.d., the parent and major
operating entity of the Sava Re Group (Sava Re), agreed to pay EUR15 million to
acquire a further 11.8% stake in its subsidiary Zavarovalnica Maribor
(Maribor) from Nova KMB (NKBM).
-- Pozavarovalnica Sava already owned 49% of Maribor, and has agreed to
buy the remaining 39.2% stake in the company for EUR50 million after a EUR55
million capital increase planned for May 2013. The remaining stake has been
temporarily bought by Pozavarovalnica Sava's major shareholder, Slovenska
odškodninska družba (SOD).
-- In our view, the planned rights issue carries some execution risk, and
the acquisition could weaken our view of Sava Re's currently "adequate"
capital adequacy, under our criteria.
-- We are accordingly placing our 'BBB+' ratings on CreditWatch with
-- The CreditWatch placement reflects the possibility that we may lower
the ratings on Pozavarovalnica Sava if the group's capital adequacy were to
weaken to low adequate or marginal levels as a result of the acquisition of
the remaining 51% participation in Maribor and its full consolidation.
On Dec. 14, 2012, Standard & Poor's Ratings Services placed on CreditWatch
with negative implications its 'BBB+' counterparty credit and insurer
financial strength ratings on Slovenia-based reinsurer Pozavarovalnica Sava
The CreditWatch placement reflects our view that capital adequacy for the Sava
Re Group (Sava Re) may weaken as result of the acquisition of 51% additional
stake in and full consolidation of subsidiary Zavarovalnica Maribor (Maribor).
Pozavarovalnica Sava, the parent and major operating entity of Sava Re, will
pay EUR65 million to acquire the remaining 51% participation in Maribor, giving
it 100% control of the No.2 Slovenian direct insurer. The deal will be
-- Own funds of EUR15 million, and
-- Capital increase of EUR55 million planned in May 2013.
As of year-end 2011, Maribor comfortably covered over 2.0x its minimum
regulatory solvency margin. Maribor appears to be adequately capitalized based
on our preliminary estimates, which do not include potential consolidation
adjustments and integration costs.
We also see some execution risk associated with the EUR55 million rights issue
planned in May 2013. In particular, if the issue is not fully underwritten, it
may prompt Sava Re to use more of its own capital than initially planned to
finance the acquisition.
In our view, the acquisition of Maribor carries a limited integration risk for
Sava Re, which has been Maribor's second-largest shareholder since 2000.
Maribor's supervisory board comprises six members, two of which are
representatives of Sava Re. Sava Re is also Maribor's major reinsurer.
We consider that Sava Re's competitive position would significantly benefit
from this deal, as it would provide it with size and a leading position in the
Slovenian direct insurance market.
The ratings on Pozavarovalnica Sava reflect Sava Re's diversified insurance
portfolio, which is well-balanced between primary and reinsurance premium
income; strong liquidity; and very good levels of capital. These strengths are
offset, however, by Sava Re's lack of a strong position in at least one
sizable and stable insurance market, and difficult macroeconomic and financial
conditions in Slovenia.
Standard & Poor's aims to resolve the CreditWatch placement within the next
six months, by which time we expect the company to have completed the capital
increase, giving us a clearer understanding of Sava Re's final level of
The CreditWatch placement reflects the risk that Sava Re's capital adequacy
may deteriorate to low adequate or marginal levels as a result of the
acquisition and full consolidation of Maribor.
We could lower the ratings on Pozavarovalnica Sava by one notch should the
capital increase planned in April 2013 be only partially successful, prompting
Sava Re to use a higher-than-expected level of its own capital to finance the
deal. This would weaken our view of its capital adequacy, which is currently
adequate. We could also lower the ratings if the capital increase is
successful, but consolidation adjustments, integration costs, and effective
levels of capital adequacy at Maribor weaken Sava Re's consolidated capital
adequacy to marginal levels.
We could affirm the ratings if the capital increase is successfully completed
and Sava Re's resulting consolidated capital adequacy remains at least
Related Criteria And Research
All articles listed below are available on RatingsDirect on the Global Credit
-- Principles Of Credit Ratings, Feb. 16, 2011
-- Refined Methodology And Assumptions For Analyzing Insurer Capital
Adequacy Using The Risk-Based Insurance Capital Model, June 7, 2010
-- Use Of CreditWatch And Outlooks, Sept. 14, 2009
-- Group Methodology, April 22, 2009
-- Interactive Ratings Methodology, April 22, 2009
-- Hybrid Capital Handbook: September 2008 Edition, Sept. 15, 2008
Ratings Affirmed; CreditWatch/Outlook Action
Pozavarovalnica Sava d.d.
Counterparty Credit Rating
Local Currency BBB+/Watch Neg/-- BBB+/Negative/--
Financial Strength Rating
Local Currency BBB+/Watch Neg/-- 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