S&P: Provident rating may improve by two notches after Covea deal

"The CreditWatch listing reflects our expectation that, following the official completion of the acquisition, there will no longer be any constraint on the ratings on Provident Insurance from its current parent, Ally Financial," said S&P's credit analyst Anvar Gabidullin.

S&P, therefore, added it may raise the ratings on Provident Insurance by up to two notches to match its stand-alone credit profile.

There is some limited potential for a further uplift above the SACP depending on the strategic position of Provident Insurance within its new owner, the rating agency added.

"The ratings on Provident Insurance reflect our view of its good stand-alone credit characteristics. These include its very conservative investments and
strong capitalization. These positive factors are somewhat diminished, however, by continued industry and underwriting performance pressures," S&P added in a statement.

"Provident Insurance's operating performance has historically been strong, although we consider that it weakened considerably in 2009. Nevertheless, it
has shown some improvement through 2010 and we expect it to return to positive profitability in 2011. This reflects our view that the company will begin to feel the benefits of the strong active cycle management actions that it took in 2009 and 2010 to improve its underwriting performance."

"We will resolve our CreditWatch listing pending approval of the acquisition by the Financial Services Authority and based on our assessment of Provident Insurance's position within the acquirer's group and any changes to its
stand-alone financial and business characteristics after the acquisition," concluded Mr Gabidullin.

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