S&P Global Ratings has affirmed its ‘A+’ long-term insurer financial strength and issuer credit ratings on the core operating entities of the Switzerland-based insurance groups Helvetia and Baloise.
The credit rating agency also affirmed the ‘A-‘ long-term issuer credit rating on Baloise Holding AG, as well as Helvetia Global Solutions Ltd’s ‘A’ long-term insurer financial strength and issuer credit rating on. The outlook on all entities is stable.
These credit rating moves follow the announcement of the Helvetia-Baloise merger, which is planned to close by the end of the fourth quarter of 2025 and is awaiting shareholder and regulatory approval.
This merger of equals will be executed through a share exchange. Initially, the top holding companies will merge to form Helvetia Baloise Holding Ltd. and all operating entities at this stage will operate under the existing structure.
S&P will be closely monitoring the potential consequences for the group status of subsidiaries as this unfolds.
“In our view, after its completion the merger has the potential to improve the enlarged group’s competitive position over the longer term. The combined group will have a leading position in the Swiss non-life and life insurance market supported by international diversification in Spain, France, Germany, Belgium, Italy, Austria, and Luxemburg, complemented by specialty business lines, Baloise Bank AG and Asset Management,” S&P stated.
The combined group would have a business volume of about Swiss franc CHF20 billion as of year-end 2024. The synergy potential is quantified with a pre-tax annual run rate of CHF350 million and total integration costs of CHF500 million-CHF600 million in the next three years.
The agency added: “In 2024, both groups reported improvements in operating performance with a return on equity (ROE) of 13%-14% and a combined ratio of 93%-95% recovering from large natural catastrophe events in 2023, mainly in Switzerland.
“We view execution risks remaining on rising the synergy potential, key personnel risks, and defend the group’s market positions in the respective markets. However, in our view the transaction bears the long-term potential to improve the enlarged group’s competitive position.”
S&P will also maintain its financial risk assessments on the groups. Both are entering the merger with strong capital adequacy, above 99.99% according to the agency;s 2024 capital model. The group further announced that the combined SST ratio would be at about 240%.
Additionally, 2024 dividends are expected to be paid as planned before the merger; Baloise’s buyback will be suspended. Analysts also noted that no immediate investment policy changes are expected.
“However, we will closely monitor the enlarged group’s capital management strategy and the potential effect on the enlarged group. The debt maturity profile complements the enlarged group, and we expect leverage to be about 40% and coverage ratios to be above 10.0x in 2025-2026,” S&P explained:
Adding: “The stable outlook reflects our view that the enlarged group will maintain capital adequacy above the 99.99% confidence level in 2025-2026 and that earnings will remain at the level of 2024 in terms of ROE and combined ratio.
“While unlikely at this stage, we might consider lowering the ratings over the next 12-24 months if, contrary to our expectations, capital adequacy declined sustainably below the 99.95% level, or if there is a shift toward a more aggressive risk appetite in terms of investments, or if significant integration risk occurs and weighs on profitability.”
Looking ahead, S&P said that it could consider a positive rating action on the enlarged group Helvetia Baloise in the next two years if the planned merger leads to visible improvements.
This could be demonstrated by sustainable earnings improvements comparing well with higher rated peers as well as earnings diversification; and capital adequacy remaining above the 99.99% confidence level.
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