(The following statement was released by the rating agency)
July 16 -
Summary analysis -- Gjensidige ------------------------------------ 16-Jul-2012
CREDIT RATING: Country: Norway
Local currency A/Stable/--
Primary SIC: Fire, marine, and
Credit Rating History:
Local currency Foreign currency
13-Jul-1999 A/-- --/--
12-Jul-1996 A+/-- --/--
The ratings on Norway-based non-life insurer Gjensidige reflect Standard & Poor’s Ratings Services’ view of the company’s very strong capitalization, strong, if declining, position in the Norwegian non-life market, and strong and stable operating performance. These positive factors are partially offset by Gjensidige’s concentration in the relatively small and competitive Norwegian non-life market. Additionally, Gjensidige’s significant corporate activity in recent years presents uncertainty surrounding its prospective capital position and financial profile along with the potential for management stretch.
Gjensidige has very strong capitalization. Extremely strong risk-based capital adequacy, an absence of financial leverage, adequate reserving, and adequate reinsurance protection combine to make capital strength a key rating factor. Acquisitions to date have impaired capital strength only slightly. That said, we still have uncertainty as to whether a significant proportion of the capital held above the current rating level could be used to make a significant acquisition in the medium term. In the absence of a major corporate action, we expect capital adequacy to remain a key rating strength, with capital adequacy (as measured by Standard & Poor’s risk-based model) in the extremely strong range.
Gjensidige has a strong competitive position, with an approximate 26% share of the Norwegian non-life market in 2011. The company’s market share in its home market has, however, been slowly declining. In recent years, Gjensidige has purposefully developed a broader range of domestic financial services and has expanded into the non-life market in Denmark, the Baltics, and Sweden. The company has made seven relatively modest acquisitions since 2005. We believe that Gjensidige will maintain a leading position in the Norwegian non-life market, despite pricing pressures. We expect that the investments in banking, life and pension activities, along with the foreign insurance operations to continue to progress in their operating performance and for Gjensidige to start benefitting from the cross-selling opportunities created by these products.
Gjensidige’s recent technical results have been strong and stable, averaging a 94.5% combined ratio (CR) over the last five years. We anticipate continued focus on pricing discipline and cost containment to achieve underwriting profitability targets. Standard & Poor’s base-case expectation is that Gjensidige will again deliver a headline CR of 93% or below for 2012 following impressive first-quarter results in 2012. In the current low interest rate environment we expect investment income to become less of an income generator and Gjensidige to become more reliant on its technical profitability. As Gjensidige’s investment portfolio is relatively low risk (outside of certain strategic stakes), we do not expect significant volatility in its investment result.
In December 2010, the company was floated on the Norwegian Stock Market (the Oslo Bors). While financial flexibility is enhanced by the listing, we also believe that it will facilitate Gjensidige’s capacity to merge with other entities through a share-for-share exchange, and accordingly, assist a more aggressive acquisitive strategy.
The stable outlook reflects the essential stability of the company, its position within the Norwegian non-life market, and the substantial insulation provided by its capital buffer.
Standard & Poor’s may consider a positive rating action if Gjensidige’s competitive position materially diversifies, or if the strategic uncertainty dissipates. Overseas operations will also need to be successfully integrated and consistently produce results more in line with those of the Norwegian private and commercial lines.
Negative rating actions could occur if Gjensidige’s corporate activity were to have a negative impact on its operating performance, competitive position, or capitalization.
Related Criteria And Research
-- Principles Of Credit Ratings, Feb. 16, 2011
-- Interactive Ratings Methodology, April 22, 2009
-- Counterparty Credit Ratings And The Credit Framework, April 14, 2004
-- Management And Corporate Strategy Of Insurers: Methodology And Assumptions, Jan. 20, 2011
-- Refined Methodology And Assumptions For Analyzing Insurer Capital Adequacy Using The Risk-Based Insurance Capital Model, June 7, 2010
-- Group Methodology, April 22, 2009