Moody's Investors Service has today confirmed Caser S.A.'s B1 insurance financial strength rating (IFSR). The outlook is negative in line with those of most of Caser's main owner banks. This rating action concludes the review for downgrade that was extended on 20 June 2013 . RATINGS RATIONALE ---CONFIRMATION OF CASER'S B1 IFSR The confirmation of Caser's B1 IFSR reflects 1)- the average credit quality of Caser's main owner banks following the resolution of their corresponding reviews, and 2)- our expectation that Caser's credit fundamentals have largely stabilized following a significant clean-up exercise through 2013 and 2012. Caser's B1 IFSR is constrained by the ownership of its banking owners -- whose standalone credit assessments continue to be on average in the B range -- reflecting our view of Caser's meaningful financial and operational linkages between the banks and the insurer. Caser has a meaningful indirect and direct exposure to its Spanish banking owners, namely through its ownership, its high reliance on the banks' distribution network to sell insurance products, and a significant exposure to the banks' debts and deposits. We believe that Caser's large investments in its banking owners' hybrids (YE 2012: EUR1 billion ) indicate the substantial linkages between the insurer and owner banks. A substantial number of these hybrids were issued by banks that received capital support from the EU and these instruments consequently suffered sizeable losses. As a result of this, Caser made a sizeable 2012 loss after tax of around EUR283 million mainly driven by impairments in investments (pre-tax EUR395 million ) as well as further additional negative one-offs. We believe that Caser will have to incur further additional investment losses in 2013, albeit smaller than those reported in 2012 and partially offset by the group's operational earnings as well as the compensation received in relation to the cancellation of certain bancassurance agreements. In addition, Caser had reasonably sufficient solvency buffers for the rating level (YE 2012: solvency cover 1.9x, solvency margin of EUR 448 million ). Although Caser's quality of capital has been traditionally weak (with intangibles as % equity at 68% as at end 2012), we expect this to improve following the aforementioned cancellation of distribution agreements. Caser reported a positive impact on the company's tangible capital of EUR250m in Q1 2013 following the exit of agreements with Bankia, S.A. and Banca Civica, S.A. Nevertheless, the cancellation of distribution agreements weakens Caser's market position and its franchise. The company's premiums continued to decline by a large 17% to EUR1.3billion at 9m 2013 as a result of the cancellation of important agreements, the reduced banking network of existing distribution partners and the overall continued low productivity in insurance sales through banking channels.
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