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TEXT-S&P cuts Compania Espanola de Seguros de Credito a la Exportacion 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', and maintained a negative outlook.

-- 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 insurer Compania Espanola de Seguros de Credito a la Exportacion S.A. by one notch 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 credit insurer Compania Espanola de Seguros de Credito a la Exportacion S.A. (CESCE) 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.

In accordance with our criteria for government-related entities, we consider CESCE's role for the government to be "very important" and the link between them to be "strong". However, because CESCE writes the majority of its business in Spain and most of its assets comprise Spanish debt, our rating on CESCE is constrained by the rating on Spain.

The ratings reflect our view of CESCE's good capitalization 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 consider to be high. In our view, the downgrade of Spain demonstrates the increased risk in CESCE's investment portfolio and the company's reduced financial flexibility. This is because the Spanish government is CESCE's majority owner, with 50.25% of its shares. The company's investment portfolio includes a substantial amount of domestic debt, the quality of which has deteriorated owing to the sovereign downgrade. A further constraint is the company's largely domestic customer base.

Outlook

The negative outlook on CESCE 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 CESCE if we were to lower the ratings on Spain, or if there were a significant weakening of CESCE's business or financial risk profile, caused by a significant decrease in revenues; combined ratios clearly exceeding 100%; or a substantial reduction in capital below a good level according to our risk-based capital model. We would likely revise the outlook on CESCE 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

-- Rating Government-Related Entities: Methodology And Assumptions, Dec. 9, 2010

-- 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; CreditWatch/Outlook Action To From

Compania Espanola de Seguros de Credito a la Exportacion S.A.

Counterparty Credit Rating BBB-/Negative/-- BBB/Stable/-- Financial Strength Rating BBB-/Negative/-- BBB/Stable/--

(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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