Standard & Poor's (S&P) has downgraded the financial strength ratings on Dutch insurance cooperative Achmea following the profits warning issued by the company earlier this month.
The agency has lowered the financial strength ratings from “A+” to “A” on Achmea's core operating subsidiaries Achmea Pensioen and Levensverzekeringen (pension and life insurance), Achmea Schadeverzekeringen (insurance) and Achmea Zorgverzekeringen (health insurance).
Issuer credit ratings on holding company Achmea B.V. were also lowered from “A-” to “BBB+” while ratings on the highly strategic subsidiaries Achmea Bank NV and Achmea Re were also downgraded from “A” to “A-”.
The ratings of the Netherlands-based firm’s subsidiaries have been lowered due to the business group’s weaker financial risk profile.
“The downgrade reflects that we have revised down our earnings forecasts for Achmea for 2016-2018. We believe the weaker earnings forecast will impact Achmea's ability to service its outstanding debt, and will in turn weaken its financial flexibility,” S&P said.
“Furthermore, lower earnings could negatively affect future capital generation, weakening the group's overall financial risk profile.”
However, the agency issued a stable outlook for all entities within the company.
S&P revised its earnings forecast for Achmea amid the company’s expectations of a limited negative operational result over the first months of 2016 due to extreme weather conditions and higher healthcare expenses.
On July 11, Achmea said the severe rain and hailstorms in recent weeks have caused extensive damage for its policyholders, both for private individuals and farmers and growers.
Achmea estimated that its customers have incurred a total damage of around €260 million while net cost claims for the company will be approximately €140 million after reinsurance.
S&P has projected that Achmea's net income will decline to €150 million-€170 million in 2016 before gradually recovering in 2017 and 2018 to more than €250 million.
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