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S&P affirm German Talanx after acuisition

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Standard and Poor’s today affirmed their ‘A+’ rating on German insurer Talanx, after the company announced a complete acquisition of Polish based Towarzystwo Ubezpieczen i Reasekuracji WARTA S.A (Warta).

The agency also affirmed their current ‘A-‘ rating of the parent company. Both outlooks are stable.

Once the acquisition of Warta, worth around €770 million, is closed Talanx’s strategic partner Meiji Yasuda will take over 30% of WARTA’s shares.

Standard and Poor’s didn’t seem very confident about the short term success of the deal, predicting capitalisation will deteriorate to around the ‘A’ range this year. However, they continue to say this would be a temporary drop and the company would bounce back to around the ‘AA’ range in 2013.

The ratings agency commented, “We believe the impact of the transaction on TPG’s financial leverage would be moderate.

We expect the financial leverage would increase to about 23% in 2012 from about 21% in 2011, which we consider well in line with the current rating level.

Operational execution risk exists, in particular, in view of Warta’s relatively large size and given integration risk of combining several other acquisitions that Talanx executed in 2011.”

Poland is one of Tanalx Groups main targets for development. Standard and Poor’s says the acquisition will be helpful in achieving this, “significantly improving Talanx’s presence” in the area. The agency predicted the deal will thrust Talanx will into the second position in Poland.

While they predicted a lower capitalisation for next year, the ratings agency expects strong earnings, with EBIT of €650 million to €700 million and an ROE of 8%-10%.