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Rating Action:

Moody's downgrades 4 Argentine Insurers citing new insurance regulations and sovereign-related credit exposures

25 Jun 2012

Both global local and Argentine national scale ratings affected.

Buenos Aires City, June 25, 2012 -- Moody's Investors Service has lowered its global local currency (GLC) and national scale (NS) insurance financial strength (IFS) ratings on 4 Argentine insurers:

ACE Seguros S.A. ("ACE Argentina") -- GLC IFS to B1 from Ba3, NS IFS to Aa3.ar from Aa2.ar;

Caruso Cia. Argentina de Seguros S.A. ("Caruso") -- GLC IFS to B2 from Ba3; NS IFS to Aa3.ar from Aa2.ar;

Chubb Argentina de Seguros S.A. ("Chubb Argentina") --GLC IFS to Ba3 from Ba1; NS IFS to Aa1.ar from Aaa.ar;

Provincia Seguros S.A. ("Provincia") -- GLC IFS to B3 from B2, NS IFS to A2.ar from Aa3.ar.

All ratings currently carry stable outlooks.

The rating actions conclude reviews initiated on November 6, 2011 (for Caruso), November 30, 2011 (for Chubb Argentina), December 1, 2011 (for ACE Seguros), and March 20, 2012 (for Provincia Seguros.) The rating reviews of Caruso, Chubb Argentina and ACE Seguros were initiated followed the passage of new resolutions by the Argentine National Insurance Superintendent in 2011 requiring Argentine insurers to repatriate their foreign investments and curtailing the direct purchase of reinsurance from international reinsurers, including from international affiliates. Subsequently, Moody's initiated an updated assessment of the linkage between the credit profiles of sovereigns and locally-domiciled financial institutions globally -- as discussed in the rating implementation guidance "How Sovereign Credit Quality May Affect Other Ratings" published on 13 February, 2012 -- which prompted the review of Provincia Seguros and was also a consideration in resolving the other 3 rating reviews.

According to Moody's, the rating downgrades on the global local currency scale reflect multiple considerations, as follows: 1) an incremental weakening of the credit profiles of these insurers' investment portfolios as a result of the legally mandated repatriation back to Argentina of higher-quality investments held outside the country, and reinvestment in the local Argentine market, which has a much lower investment credit profile (e.g. Argentine sovereign bonds currently rated B3 ); 2) constraints on Argentine insurers' reinsurance cessions as mandated by the revised regulations, which particularly affect insurers that have relied more heavily on external cessions, including to international affiliates; 3) the application of the rating implementation guidance with respect to linkages between the credit profiles of sovereigns and locally-domiciled financial institutions; and 4) the application of the revised Ba3 sovereign GLC ceiling.

RATINGS RATIONALE

ACE Argentina

The downgrade of ACE Argentina's GLC IFS rating to B1 from Ba3 reflects the negative impact of the legally-mandated investment repatriation on the credit profile on the insurer's asset quality and, to a lesser degree, its capitalization and risk-adjusted profitability, and the negative impact of the more restrictive nature of Argentina's revised reinsurance regulations. Moody's commented that ACE Argentina previously had allocated a significant portion of its investments in high-quality assets outside of Argentina and had in place extensive reinsurance agreements with its affiliate, ACE Tempest Reinsurance Ltd. -- rated Aa3 for IFS. Although ACE Argentina's stand-alone credit profile was lowered to B2 from B1, primarily reflecting linkages with sovereign risk, the published B1 GLC rating continues to reflect 1 notch of uplift because of parental support (ACE INA Holdings, Inc. -- backed senior unsecured debt at A3). Moody's noted that the consideration of parental support reflects ACE Limited's demonstrated regional commitment in Latin America, brand-sharing and strategic alignment, as well as continued substantial -- if somewhat less direct (following revised Argentine reinsurance regulations) -- prospective affiliated reinsurance support.

The downgrade of ACE Argentina's NS IFS rating (to Aa3.ar from Aa2.ar) primarily reflects the company's lower GLC rating, as well as its comparative profile to other B1-rated firms in Argentina. ACE Seguros is an indirect wholly-owned subsidiary of ACE Limited. The company provides insurance coverage for corporates and individuals in Argentina across a wide range of personal and commercial lines.

Caruso

The downgrade of Caruso's GLC IFS rating to B2 from Ba3 primarily reflects the company's high direct investment exposure to Argentine sovereign bonds and bank deposits, and the rating agency's view that strong linkages exist between insurers and sovereigns. Moody's said the required repatriation of foreign assets into lower-quality domestic investments weakens Caruso's risk-adjusted capitalization and profitability.

The downgrade of Caruso's NS IFS rating (to Aa3.ar from Aa2.ar) primarily reflects the company's lower GLC rating, as well as its comparative profile to other B2-rated firms in Argentina. Caruso is a leading regional company that provides multiline insurance coverages, although the company's principal business segment is group life, comprising about 90% of gross premiums written. Caruso's products are designed mainly for small-to-medium sized businesses and for medium-to lower-income individuals. The company's core market is located in the central and northwestern regions of Argentina.

Chubb Argentina

The downgrade of Chubb Argentina's GLC IFS to Ba3, from Ba1, reflects the negative impact of the legally-mandated investment repatriation on the credit profile on the insurer's asset quality and, to a lesser degree, its capitalization and risk-adjusted profitability, and the negative impact of the more restrictive nature of Argentina's revised reinsurance regulations, and the application of the lower GLC sovereign ceiling for Argentina. If not for the revised Ba3 (lowered from Ba1) GLC sovereign ceiling, Chubb Argentina's GLC IFS rating would be a notch higher. Moody's commented that Chubb Argentina previously had allocated a significant portion of its investments in high-quality assets outside of Argentina and had in place extensive reinsurance agreements with its affiliate, Federal Insurance Company--rated Aa2 for IFS. Although Chubb Argentina's stand-alone credit profile was lowered to B1 from Ba1, primarily reflecting linkages with sovereign risk, the published Ba3 GLC rating reflects a net uplift of 1 notch, as a result of support from the parent company (The Chubb Corporation -- senior unsecured debt at A2) which is ultimately constrained by the revised sovereign ceiling. Moody's noted that the consideration of parental support reflects The Chubb Corporation's demonstrated regional commitment in Latin America, brand-sharing and strategic alignment, as well as continued substantial -- if somewhat less direct (following revised Argentine reinsurance regulations) -- prospective affiliated reinsurance support. Absent the sovereign ceiling constrain, Chubb Argentina's rating would be a notch higher than the published Ba3 GLC IFS.

The downgrade of Chubb Argentina's NS IFS rating (to Aa1.ar from Aaa.ar) primarily reflects the company's lower GLC rating, as well as its comparative profile -- in the absence of the Ba3 country ceiling -- to other similarly-rated firms in Argentina. Chubb's Aa1.ar IFS remains the highest NS rating for any insurer in the country. Chubb Argentina is a property and casualty insurer active in both personal and commercial lines. It is an indirect wholly-owned subsidiary of USA-based The Chubb Corporation (NYSE: CB) and underwrites several business lines with special focus in surety, general liability, fire and allied perils and in personal lines for high income customers.

Provincia

The downgrade of Provincia's GLC IFS rating to B3 from B2 reflects the company's very high direct investment exposure to Argentine sovereign, bank-related and other local assets relative to capital, in the context of Moody's assessment of the linkages and correlation between sovereign and financial institutions credit risk globally. The company's exposure to domestic sovereign assets and local bank deposits as of March 31, 2012 stood at approximately 300% of the company's equity capital, indicating a very high correlation between the Argentine sovereign risk and Provincia's credit profile., Moody's said the insurer's published IFS rating does not benefitgets no uplift from its stand-alone B3 credit profile.

The downgrade of the company's NS IFS rating (to A2.ar from Aa3.ar) primarily reflects the company's lower GLC IFS rating, as well as its comparative profile to other B3-rated firms in Argentina. Provincia Seguros is 60% owned by the major Argentine financial services group, Grupo Banco Provincia S.A., which in turn is owned by the second-largest bank in Argentina, Banco de la Provincia de Buenos Aires. Grupo Banco Provincia S.A. is engaged in multiple financial services segments and it also maintains a presence in the life insurance industry through Provincia Seguros de Vida, and in the mono-line workers' compensation segment through Provincia Seguros ART.

WHAT COULD MOVE THE RATINGS UP/DOWN

As the key drivers of today's 4 rating actions are mostly structural in nature, Moody's considers that upwards rating pressure is unlikely over the near-term. Beyond the foreseeable future, a combination of an improving Argentine operating environment/Argentine sovereign credit risk profile, declining direct sovereign-risk investment exposures, and cross-border diversification could exert upwards rating pressure. Conversely, deterioration in the Argentine operating environment/Argentine sovereign credit risk profile and/or a weakening of the insurers' stand-alone financial fundamentals and credit profile could exert downwards pressure on the ratings.

Moody's insurance financial strength ratings are opinions of the ability of insurance companies to pay punctually senior policyholder claims and obligations. For more information, visit our website at www.moodys.com/insurance.

NOTE: Moody's National Scale Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".ar" for Argentina. For further information on Moody's approach to national scale ratings, please refer to Moody's Rating Implementation Guidance published in March 30, 2011 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings".

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant 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.

Information sources used to prepare the rating are the following : parties involved in the ratings, and public information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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.

Diego Nemirovsky
Vice President - Senior Analyst
Financial Institutions Group
Moody's Latin America
Ing. Butty 240
16th Floor
Buenos Aires City C1001AFB
Argentina
JOURNALISTS: (800) 666 -3506
SUBSCRIBERS: (5411) 3752 2000

Robert Riegel
MD - Insurance
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Latin America
Ing. Butty 240
16th Floor
Buenos Aires City C1001AFB
Argentina
JOURNALISTS: (800) 666 -3506
SUBSCRIBERS: (5411) 3752 2000

Moody's downgrades 4 Argentine Insurers citing new insurance regulations and sovereign-related credit exposures
No Related Data.
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