S&P downgrades NN Group on Delta Lloyd acquisition

Ratings agency S&P Global Ratings has downgraded Dutch insurer NN Group due to the financial resources used to acquire its competitor Delta Lloyd which are reducing its capital buffers.

In December 2016, multiline insurer NN Group and Delta Lloyd reached a conditional agreement under which NN Group will buy Delta Lloyd for around €2.5 billion.

In April NN Group said it had acquired 93.3 percent of the issued and outstanding ordinary shares of Delta Lloyd. The predominantly cash nature of the transaction and its funding from NN Group's existing capital buffers and senior debt has weakened NN's financial risk profile, which the group is unlikely to fully recover over the next two years, S&P noted.

S&P Global Ratings said that it has lowered its long-term counterparty credit rating on NN Group to 'BBB+' from 'A-'. At the same time, S&P lowered its long-term counterparty credit and insurer financial strength ratings on NN Group core operating company NN Re (Netherlands) to 'A' from 'A+' and the long-term counterparty credit rating on highly strategic subsidiary NN Bank to 'A-' from 'A'.

The downgrade of the NN Group entities reflects S&P’s view that the predominantly cash nature of the transaction and its funding using existing cash resources and non-capital-like senior debt weaken the group's capital adequacy. The group paid around €2.3 billion for the acquisition, consequently lowering its capital buffers. Despite the base-case assumption that NN Group will rebuild its capital buffers with earnings retention after ordinary dividend and contained risk-taking, S&P views it as unlikely that the consolidated group will rebuild buffers to the same very strong range as it had before the transaction within our rating horizon through 2019.

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