Insurer ASR Nederland's Proposed Dated Junior Subordinated Notes Rated 'BBB-'

FRANKFURT (S&P Global Ratings) April 17, 2019--S&P Global Ratings today assigned its 'BBB-' long-term issue rating to the junior subordinated notes to be issued by Dutch ASR Nederland N.V. (BBB+/Stable/--), the holding company of the ASR insurance group (includes ASR Levensverzekering N.V. and ASR Schadeverzekering N.V.; both rated A/Stable/--). The rating on the notes is subject to our receipt and review of the issue's final terms and conditions.
Under our methodology for rating junior subordinated debt issues, we rate the notes two notches below our 'BBB+' long-term issuer credit rating on ASR Nederland N.V. This reflects our understanding that the noteholders will be subordinated to ASR's senior creditors. Furthermore, we understand that the subordinated notes contain an interest deferral provision, which gives ASR Nederland N.V. the option to defer coupons, subject to a dividend look-back with a 12-month look-back period.
In addition, in the case of a regulatory deficiency event, coupon deferral is mandatory. This includes any event that causes the solvency ratio to fall below the solvency capital requirement in the Solvency II directive.
The issuer has the option to redeem, exchange, or vary the terms of the notes under certain circumstances, such as for regulatory, rating actions, or taxation reasons. The notes are callable in 2029 and at each annual interest payment date thereafter. This is also subject to the conditions of repayment, including approval from the insurance regulator. The coupon is fixed until the call date, when it will convert to a resettable fixed coupon and this will be reset every five years. We understand that the notes include a step-up at the first call date of a maximum 100 basis points to the fixed-rate spread if the call is not exercised.
We classify the notes as having intermediate equity content. We include securities of this nature, up to a maximum of 25%, in our calculation of total adjusted capital, which forms the basis of our consolidated risk-based analysis of an insurance company's capital. This inclusion is subject to the notes being considered eligible for regulatory solvency treatment and the aggregate amount of included hybrid capital not exceeding the total eligible for regulatory solvency treatment.
We understand that ASR Nederland N.V. expects to use the proceeds of the proposed notes to finance its recently announced acquisition of Loyalis N.V. We expect the issuance to have a limited impact on the group's financial leverage and fixed-charge coverage ratios in 2019–2021. We expect financial leverage to slightly increase to about 20% and fixed-charge coverage to remain above 4x.
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