(Note: Includes correction Gerling NCM was placed on credit watch, not downgraded as per story 2/26/03) The sale of Gerling’s reinsurance operations is being halted by German regulators the parent company has confirmed to Reuters. The story comes as Standard & Poor’s says it is lowering the long-term counterparty credit and insurer financial strength ratings of parent Gerling-Konzern Allgemeine Versicherungs-AG (GKA) and Gerling-Konzern Lebensversicherungs-AG (GKL) to BB+ from BBB. “The downgrade reflects the fact that the Gerling group is not expected to receive regulatory approval for the sale of its reinsurance operations (Gerling-Konzern Globale Ruckversicherungs-AG; GKG) to private investor Dr. Achim Kann,” says S&P credit analyst Karin Clemens. “If GKG were to remain as part of the Gerling group, it would put significant pressure on the Gerling group’s risk-based capitalization and solvency.” The reinsurance operations were to be sold to a run-off consortium, Lago Achte, headed by Kann. S&P also continues its credit watch “negative” on core entities of the group’s credit insurance group, A-rated Gerling NCM. This unit is generally graded higher given strong external shareholder Swiss Re’s position, but could be downgraded if a new ownership structure is not worked out. While S&P acknowledges that Gerling remains in discussions with Kann and other interested parties, it does not expect a successful sale to come in the short-term, and notes this could also hinder chances to sell the group’s primary companies. Failure to sell the reinsurance operations could result in further downgrades, the rating agency warns. However, “the completion of a disposal of GKG and the completion of the sale of GKA and GKL might result in higher ratings,” says Clemens. “On the other hand, the ratings might also be lowered if the Gerling group is not able to meet regulatory solvency requirements.” Recently, A.M. Best withdrew ratings on the group’s reinsurance operations but affirmed the ratings for its primary companies.