Fitch Places SNS REAAL Insurance Entities on RWE On Potential Acquisition by Anbang Group
The rating actions follow the announcement that China-based Anbang Group Holdings Co Ltd (Anbang), a subsidiary of Anbang Insurance Group Co Ltd, has agreed to acquire REAAL Insurance from SNS REAAL for a consideration of EUR150m, inject capital of between EUR770m and EUR1bn and pay down EUR552m intercompany loans.
The transaction is expected to complete in 3Q15 and remains subject to regulatory approvals. In addition, if there is a meaningful decline in REAAL Insurance's accounting equity between 31 December 2014 and 30 June 2015, Anbang has the right to dissolve the agreement. Resolution of the RWE will be dependent on completion of the deal.
KEY RATING DRIVERS
If the acquisition goes ahead, the ratings of REAAL Insurance will depend, in part, on the credit quality of Anbang, which Fitch plans to assess. In addition, Fitch will assess the importance of REAAL Insurance to the Anbang investment portfolio.
The deal would remove uncertainty over the future ownership of REAAL Insurance. This uncertainty was one of the factors - along with weak profitability and capital - underpinning the Negative Outlook on REAAL Insurance's ratings. SNS REAAL's ownership of REAAL Insurance is neutral for the ratings.
If Anbang injects capital and pays down intercompany loans as planned, REAAL Insurance's financial leverage and capital position will improve. Financial leverage would fall to below 30% from over 40%, based on pro-forma calculations using 3Q14 financials. REAAL Insurance's solvency margin calculated in accordance with Solvency 2 - in part already implemented in the Netherlands - would be expected to reach 140%-150% after the capital injection.
If the deal is not concluded, there is a possibility that REAAL Insurance's capital, profitability and/or market position will deteriorate.
There is no impact on the ratings of SNS Bank (BBB+/Negative/bbb-) and SNS REAAL (BBB+/Negative) at this stage, primarily because the standalone strength of SNS Bank would not be directly affected by this transaction, in Fitch's view. Fitch expects to review these ratings as part of the normal review cycle for the issuers. Both Long-term Issuer Default Ratings (IDRs) are driven by Fitch's expectation of support from the Dutch state (AAA/Stable), and the Negative Outlooks are driven by diminishing support expectations for EU banks.
REAAL Insurance's ratings could be downgraded if Fitch considers Anbang has a weaker credit profile than REAAL Insurance.
REAAL Insurance's ratings could also be downgraded if the transaction does not go ahead as planned, as a consequence of its weak profitability, declining capital position and strategic uncertainties.
Conversely, REAAL Insurance's ratings are likely to be upgraded if the transaction is completed as planned and Fitch assesses Anbang as having a stronger credit profile than REAAL Insurance.