Eurco Re’s insurer financial strength rating has been downgrade to ‘BBB’ from ‘BBB+’ by Fitch Ratings with a stable outlook.
The downgrade follows Dexia Group’s announcement on 10 October 2011 that Dexia Bank Belgium (DBB) was to be purchased in its entirety by the Belgian State. Consequently, DBB’s Issuer Default Rating (IDR) was downgraded to ‘A’ (see “Fitch Downgrades Dexia Bank Belgium to ‘A’; Affirms Dexia at ‘A+'” dated 11 October 2011 at www.fitchratings.com) , reflecting the Belgian Support Rating floor of ‘A’. Previously, Dexia SA was considered the ultimate parent of Eurco Re. Dexia SA’s IDR rating of ‘A+’ is based on the French Support Rating Floor after the company received support from the French, Belgian and Luxembourg states. Eurco Re’s one notch downgrade reflects the downgrade to DBB, now its ultimate parent.
The rating reflects potential support for Eurco Re, which Fitch believes would be provided by Eurco Re’s immediate parent, the insurance company, DIB and, if required, by DBB. Fitch believes that this support would be provided to Eurco Re because of both its importance to DIB and the reputational damage which could follow from any potential absence of support. The agency does not consider the willingness of DBB to provide support to its rated insurance operations to have diminished as a result of the change in its ownership.
Eurco Re’s ratings could be downgraded if its importance to DIB were to decline. Furthermore, were DIB to be sold by DBB, Eurco Re’s rating would need to be reconsidered and its viability assessed. DBB’s rating is at the Belgian Support Rating Floor. If the Support Rating Floor was lowered, DBB would be downgraded. In this instance, it is possible that Fitch would not automatically downgrade the rating of Eurco Re.
Eurco Re’s ratings could be upgraded if DBB’s rating was to be upgraded or if Fitch were to view Eurco Re as substantially more important to DIB. Fitch does not consider an upgrade as likely in the medium-term.
Eurco Re itself is small, and entirely reliant on business from DIB. It is well capitalised and has been consistently profitable. It is based in Dublin and licensed by the Central Bank of Ireland to operate as a reinsurance company. It is a fully controlled subsidiary of DIB. DIB obtains the majority of its gross written premium from sales of life insurance products to retail customers through DBB’s bancassurance channel using DBB’s network of branches.
Source : Fitch Ratings
