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TEXT-S&P cuts Fenix Directo rating

(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 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 unsolicited ratings on Spanish direct insurer Fenix Directo S.A. by one notch to 'BBB-pi' from 'BBBpi'.

Rating Action On Oct. 12, 2012, Standard & Poor's Ratings Services lowered its unsolicited public information (pi) counterparty credit and insurer financial strength ratings on Spanish direct insurer Fenix Directo S.A. to 'BBB-pi' from 'BBBpi'.

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 Fenix reflect our view of the company's good capitalization and good financial flexibility, as part of the Allianz group (core operating entities rated AA/Negative/A-1+). We consider these factors to be partly offset by the company's challenges as a direct insurer in the very competitive Spanish motor market, relatively low earnings, weakening financial risk profile, and exposure to country risk, which we consider to be high.

We further consider that the downgrade of Spain shows the heightened risk in Fenix'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 purely domestic customer base because it underwrites nearly all of its business in Spain's motor market.

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

-- Ratings Bearing A "pi" Subscript: Methodology And Assumptions, Feb. 9, 2011

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

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

Ratings List Downgraded To From

Fenix Directo S.A. (Unsolicited Ratings)

Counterparty Credit Rating BBB-pi/--/-- BBBpi/--/-- Financial Strength Rating BBB-pi/--/-- BBBpi/--/--

(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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