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TEXT-S&P puts Pozavarovalnica Sava on watch negative
December 14, 2012 / 5:36 PM / in 5 years

TEXT-S&P puts Pozavarovalnica Sava on watch negative

     -- 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 
negative implications. 
     -- 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. 

Rating Action
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 
financed via: 
     -- 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 
capital adequacy. 

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 List
Ratings Affirmed; CreditWatch/Outlook Action
                                        To                 From
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 All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at Use the Ratings search box located in the left 

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