OREANDA-NEWS. Fitch Ratings says NN Group N. V.'s (NN; Insurer Financial Strength Rating of main operating entity A+/Stable) rating will not be affected by its proposed offer to acquire Delta Lloyd N. V. (Delta Lloyd). On 5 October, NN announced its intended all-cash offer of EUR2.4bn for the outstanding shares of Delta Lloyd. Fitch believes that the positive and negative factors of the potential acquisition broadly offset each other.

We believe that the potential transaction would further improve NN's strong market position in the Dutch insurance market across various lines. It would also provide an opportunity to realise capital synergies, as well as significant cost efficiencies, given the considerable overlap between the businesses in the Netherlands.

There would be execution risks in integrating the acquired business and realising the planned synergies. However, Fitch believes NN has the necessary expertise and track record, particularly in expense management, to execute the transaction successfully. The acquisition would also be consistent with NN's strategy of being an insurance leader in the Dutch market.

NN intends to finance the transaction with existing cash resources and new debt. We expect that this could increase the group's financial leverage to above 30% on a pro forma basis post - acquisition, a level that exceeds Fitch's previously stated trigger for a potential downgrade of NN's ratings. However, we expect this to be only a temporary spike, with financial leverage falling back below 30% within a relatively short period.

On 7 October, Delta Lloyd indicated that it rejected NN's proposed offer. However, it did not rule out the possibility of a successful transaction on revised terms. Any revised offer that changes Fitch's expectation for NN's financial leverage ratio to above 30% for a sustained period could lead to downward pressure on NN's ratings.

We expect the group's capitalisation ratios would reduce on a pro forma basis, but still remain a rating strength. From a Prism FBM perspective, we estimate NN's score would fall to 'very strong' from 'extremely strong', which would be in line with similarly rated European peers.

Solvency II is an important catalyst for the consolidation of the Dutch market, in Fitch's view. Low growth and the resulting need to achieve scale efficiencies have been a theme for some time, but significant Solvency II capital diversification benefits further improve the business case for insurance acquisitions. For this reason we expect the NN/Delta Lloyd combined Solvency II position would be significantly higher than a simple weighted average of the groups' separate Solvency II ratios.