Reuters logo
Fitch Affirms Adriatic Slovenica & KD Group; Outlooks Stable
September 1, 2017 / 10:24 AM / 3 months ago

Fitch Affirms Adriatic Slovenica & KD Group; Outlooks Stable

(The following statement was released by the rating agency) LONDON, September 01 (Fitch) Fitch Ratings has affirmed Slovenian composite insurer Adriatic Slovenica d.d.'s 'BBB-' (Good) Insurer Financial Strength (IFS) Rating and holding company, KD Group financna druzba, d.d.'s (KD Group) 'BB' Issuer Default Rating (IDR). The Outlooks are Stable. KEY RATING DRIVERS The ratings reflect KD Group's high financial leverage, low profitability and moderate business profile. KD Group's high financial leverage of 43% at end-2016 (end-2015: 40%) is a key negative rating driver. Financial leverage increased in 2016 following the issuance of EUR50 million subordinated notes in May 2016 by Adriatic Slovenica. Fitch views positively that the group plans to reduce leverage in the medium term. Fitch views KD Group's consolidated capitalisation at end-2016 as "Very Strong" (end-2015: "Adequate"), based on the agency's Prism factor-based capital model (Prism FBM). Adriatic Slovenica's regulatory solvency coverage is also strong, with Solvency II solvency capital requirement (SCR) coverage of 157% at end-2016 (end-2015: 124%) without using any transitional measures. The group's Prism FBM assessment and its SCR coverage benefited from the issuance of subordinated Tier 2 notes in May 2016. However, Fitch views the quality of capital as relatively weak because the subordinated notes now represent a high share of KD Group's available capital. KD Group's core capital is relatively low due to Fitch not giving credit for goodwill, which totalled EUR50.1 million at end-2016, when assessing available capital. KD Group reported positive but volatile net profits between 2013 and 2016, following losses in 2009-2012 from its underperforming bank business, which was sold in 2012, and losses at other non-core corporate affiliates affected by the financial crisis. In 2016 KD Group's net profit improved to EUR2.3 million (2015: EUR0.8 million) due to lower revaluation expenses and a release of deferred tax. Adriatic Slovenica has been consistently profitable, reporting annual net income of over EUR10 million for each of the past five years and an average return on equity of 15%. Fitch considers KD Group to have a moderate business profile. KD Group is of "Small Size/Scale", according to Fitch's global benchmarks, with total assets (excluding reinsurance assets) of EUR788 million and total equity of EUR122 million at end-2016. However, the group has a strong position in its main market, Slovenia. Adriatic Slovenica is the third-largest insurer in the country, and the asset management operations are second, with a market share of 23% in the Slovenian mutual fund market. Fitch views this strong position in the local market as rating-positive. KD Group is in the process of divesting most non-core assets to focus on its core insurance and asset management businesses. Fitch expects this to improve the group's performance and generate extra cash flow over the coming years. As around 60% of the group's invested assets are held in Slovenian investments and 98% of the group's revenue is in Slovenia (A-/Stable), the group's financial performance is exposed to the health of the local economy. In particular, KD Group is exposed to the risk of losses on non-unit-linked investments and the risk of lapses on unit-linked liabilities. RATING SENSITIVITIES KD Group's leverage improving to below 40%, in combination with stabilised profitability, could lead to an upgrade. The ratings could be downgraded if the group's consolidated capital position weakens for a sustained period. Financial leverage in excess of 50% could also lead to a downgrade. Contact: Primary Analyst Ralf Ehrhardt Director +44 20 3530 1551 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Dr Christoph Schmitt Director +49 69 768 076 121 Committee Chairperson Federico Faccio Senior Director +44 20 3530 1394 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Insurance Rating Methodology (pub. 26 Apr 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below