S&P: Macquarie Life Ltd. 'A-' Ratings Remain On CreditWatch Negative
"We kept the ratings on CreditWatch to reflect the possibility that we could lower the ratings on MLL by at least one notch following Macquarie Group's announcement of its agreement to sell its life operations to Zurich Australia Ltd.," said S&P Global Ratings credit analyst Rakesh Tummala.
We expect MLL's life risk operations, and key credit factors, to remain unchanged until the sale is settled. The sale also remains subject to regulatory and court approvals although we do not expect any impediments to the proposed transaction.
We believe the decision to sell the life insurance business reflects Macquarie Group's objective to achieve targeted performance benchmarks, which would require greater scale in the MLL's life risk operations, given the capital intensive nature of the life insurance industry. The CreditWatch negative placement recognizes the prospects that the remaining operations in MLL could have a weaker business and financial risk profile post the sale.
With the announced sale, we consider MLL as a nonstrategic subsidiary of Macquarie Bank Ltd. (MBL; A/Stable/A-1). As a nonstrategic subsidiary, under our criteria, the ratings on MLL do not receive any benefit for group support.
"We aim to resolve the CreditWatch placement when we have further information regarding the ongoing business and financial profile of MLL subsequent to the transaction," said Mr. Tummala. "We expect settlement of the transaction to be completed in early October 2016."
We could affirm the ratings on MLL at 'A-' and remove them from CreditWatch if we believe Macquarie Group would further supplement the operations of MLL, post settlement, with new business such that the company's materiality and criticality justifies it being considered strategic to the group. We could also affirm the ratings at 'A-' if MLL re-establishes its business and financial risk profile at a level that supports a stand-alone credit profile of 'a-' post the sale.