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Rating Action:

Moody's assigns a Baa3(hyb) rating to Tryg Forsikring's proposed perpetual restricted Tier 1 notes

13 Apr 2018

London, 13 April 2018 -- Moody's Investors Service has today assigned a Baa3(hyb) rating to the proposed perpetual restricted Tier 1 capital notes to be issued by Tryg Forsikring A/S ("Tryg", A1 insurance financial strength rating, stable outlook). The rating is based on the expectation that there will be no material difference between current and final documentation in relation to the notes.

The proposed notes will be partially or fully written down if the solvency ratio of Tryg and/or the Tryg Group breaches certain triggers. Moody's approach to rating such "high trigger" contingent capital securities is described in its Global insurance rating methodologies (Global Property and Casualty Insurers: https://www.moodys.com/research/Global-Property-and-Casualty-Insurers--PBC_1055541).

RATINGS RATIONALE

The Baa3(hyb) rating of the notes reflects their deeply subordinated status (the notes rank junior to Tryg's existing subordinated debt), the risk of coupon cancellation on a non-cumulative basis (coupons can be cancelled at any time at the issuer option and are mandatorily cancelled if Tryg's and/or Tryg Group's solvency ratio falls below 100% or in case of regulatory intervention) and the risk of principal write-down under certain circumstances. The notes will be partially or fully (if it is not possible to restore compliance with the solvency capital requirement (SCR)) written down if Tryg's and/or Tryg Group's own funds fall to or below a) 75% of the SCR b) the minimum capital requirement, or c) below 100% of the SCR for a period of more than three months.

Moody's assesses the probability of the write-down trigger breach (own funds below 100% of Tryg's or Tryg Group's SCR) using an approach that is model-based. The outcome of the model is then supplemented by qualitative considerations, which can be insurer or jurisdictional specific, as well as the variability of the loss in case of write-down.

The model takes into account Tryg's creditworthiness as captured by its A1 insurance financial strength rating (IFSR), Moody's expectation of Tryg's and Tryg Group's Solvency II ratios, which Moody's expects to closely mirror each other, and disclosed ratio sensitivities. Tryg Group reported a 283% Solvency II ratio at Q1 2018 or 197% when adjusted for the capital raised for the acquisition of Alka Forskring , and expects a solvency ratio of approximately 170% when the Alka acquisition is finalised. The Baa3(hyb) rating is below the notional rating that would apply to Tryg's preferred stock absent equity conversion or principal write-down features.

The documentation of the notes also allows for a discretionary principal reinstatement following a write-down. Such reinstatement would be possible only after Tryg and/or the Tryg Group has complied with its SCR requirements, and if such reinstatement was approved by the regulator. The reinstatement would occur only on the basis of profits generated subsequent to the restoration of the SCR.

According to the terms and conditions of the notes, Tryg may substitute or vary the terms of the notes under certain circumstances, although Moody's believes that the terms cannot be changed in a way that is materially adverse to the investor.

The notes are intended to qualify as restricted Tier 1 capital under Solvency II and will receive equity credit, as other restricted Tier 1 securities.

WHAT COULD MOVE THE RATINGS UP/DOWN

The key drivers of the notes' rating are the level of Tryg's and Tryg Group's Solvency II ratios and Tryg's A1 IFSR. Negative rating action on the notes could occur if Tryg's or Tryg Group's Solvency II ratio is consistently below 170%, and/or if Tryg's A1 IFSR is downgraded.

Factors that could exert negative rating pressure on Tryg's IFSR are: (1) meaningfully reduced capital adequacy with gross underwriting leverage of above 6x on a sustained basis and Solvency II coverage below 150% and/or; 2) meaningful deterioration in profitability with the combined ratio above 95% and return on capital below 10% and/or; 3) adjusted financial leverage consistently above 25%.

Conversely, positive rating action on the notes could occur if Tryg's Solvency II ratio is consistently above 200%, and/or if Tryg's A1 IFSR is upgraded.

Factors that could exert positive rating pressure on Tryg's IFSR are a combination of: 1) a meaningful enhancement of business franchise and diversification; 2) enhanced capital adequacy with gross underwriting leverage of below 3x whilst reporting Solvency II coverage consistently above 200%; 3) a reported combined ratio consistently around 85% and return on capital above 20%; 4) adjusted financial leverage consistently below 15%.

RATING LIST

..Assignment:

....Preferred Stock Non-cumulative, assigned Baa3(hyb)

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was Global Property and Casualty Insurers published in May 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Dominic Simpson
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Antonello Aquino
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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