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TEXT-S&P cuts Nacional de Reaseguros S.A.

(The following statement was released by the rating agency)

Overview

-- On Oct. 10, 2012, we downgraded the Kingdom of Spain to 'BBB-/A-3' from 'BBB+/A-2'. The outlook on Spain remains negative.

-- Under our criteria, we generally cap the ratings on domestic insurers at the level of the sovereign local currency rating.

-- As a result, we are lowering our ratings on Spanish reinsurer Nacional de Reaseguros S.A. by two notches to 'BBB-' from 'BBB+'.

-- The negative outlook reflects that on the Kingdom of Spain.

Rating Action On Oct. 12, 2012, Standard & Poor's Ratings Services lowered its insurer financial strength and counterparty credit ratings on Spanish reinsurer Nacional de Reaseguros S.A. (Nacional) to 'BBB-' from 'BBB+'. The outlook is negative.

Rationale

The rating action follows our lowering of the long- and short-term ratings on the Kingdom of Spain (BBB-/Negative/A-3) on Oct. 10, 2012 (see "Spain Ratings Lowered To 'BBB-/A-3' On Mounting Economic And Political Risks; Outlook Negative," published on RatingsDirect on the Global Credit Portal). Under our criteria, our view of country risk generally constrains our ratings on an insurer (see "Criteria Update: Factoring Country Risk Into Insurer Financial Strength Ratings," published on Feb. 11, 2003, and "Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology And Assumptions," published June 14, 2011). Following the sovereign rating action, country risk has, in our view, increased.

The ratings on Nacional reflect our view of its strong capitalization, strong operating performance, and good competitive position. We consider these factors to be partly offset by the group's weakening financial risk profile and exposure to country risk, which we regard as high. We further consider that the downgrade of Spain shows the increased risk in Nacional's investment portfolio and capitalization. The company's investment portfolio includes a large amount of domestic debt and bank deposits, the quality of which has deteriorated to only a good level. A further constraint is the company's largely domestic customer base.

Outlook

The negative outlook on Nacional reflects that on our long-term ratings on Spain and our view of the potential heightening of country risk for the company if we were to lower the sovereign rating further.

We could lower the ratings on Nacional if we were to lower the ratings on Spain, or if there were a significant weakening of Nacional's business or financial risk profile. We would likely revise the outlook on Nacional to stable if the outlook on Spain were revised to stable.

Related Criteria And Research

-- Spain Ratings Lowered To 'BBB-/A-3' On Mounting Economic And Political Risks; Outlook Negative, Oct. 10, 2012

-- Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology And Assumptions, June 14, 2011

-- Principles Of Credit Ratings, Feb. 16, 2011

-- Refined Methodology And Assumptions For Analyzing Insurer Capital Adequacy Using The Risk-Based Insurance Capital Model, June 7, 2010

-- Use Of CreditWatch And Outlooks, Sept. 14, 2009

-- Interactive Ratings Methodology, April 22, 2009

-- Criteria Update: Factoring Country Risk Into Insurer Financial Strength Ratings, Feb. 11, 2003

Ratings List Downgraded To From Nacional de Reaseguros S.A. Counterparty Credit Rating BBB-/Negative/-- BBB+/Negative/-- Financial Strength Rating BBB-/Negative/-- BBB+/Negative/--

(Caryn Trokie, New York Ratings Unit)

((Caryn.Trokie@thomsonreuters.com; 646-223-6318; Reuters Messaging: rm://caryn.trokie.reuters.com@reuters.net))

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