The affirmation follows TPG's announcement on Jan. 20, 2012, that it will acquire Poland-based insurer Towarzystwo Ubezpieczen i Reasekuracji WARTA S.A. (WARTA, BBB+/Developing/--) for €770 million. Once the transaction closes, which is expected in the second half of 2012, TPG's strategic partner Meiji Yasuda Life Insurance Co. (A/Stable/A-1) will take over 30% of WARTA's shares.

In our view, the main impact of this transaction for TPG will be on its capitalization and to a lesser extent on the group's financial leverage. We believe that TPG's capital adequacy would deteriorate into the 'A' range in 2012 according to Standard & Poor's capital model as a result of the transaction, reflecting goodwill and capital requirements on WARTA's assets and liabilities. Nevertheless, we believe that this deterioration would only be temporary and we would expect TPG would be capable of and committed to recapitalizing into its target 'AA' range in 2013 at the latest. We base our assessment mainly on our expectation that TPG's retained earnings will be sufficient to rebuild capital adequacy to a pre-transaction level over the next 12 to 18 months. We assume that TPG achieved EBIT of between €400 million and €450 million in 2011, and a posttax return on equity (ROE) of 4%-8%.

We believe the impact of the transaction on TPG's financial leverage would be moderate. We expect the financial leverage would increase to about 23% in 2012 from about 21% in 2011, which we consider well in line with the current rating level.

Operational execution risk exists, in particular, in view of WARTA's relatively large size and given integration risk of combining several other acquisitions that TPG executed in 2011. Nevertheless, we believe the acquisition of WARTA will significantly improve TPG's presence in Poland, one of the group's target growth regions within Central and Eastern Europe. On a consolidated basis, TPG will have a strong No. 2 position in Poland, when including its existing operations, which creates additional diversification for the group.

The ratings on TPG continue to reflect its strong competitive position as well as its very strong and conservative investment strategy. Partly offsetting these strengths, in our opinion, are the recently high volatility of earnings and relatively lower competitive strength of TPG's largest life carrier HDI-Gerling Lebensversicherung AG.

In our view, the TPG group is committed to capital recovery in 2012 and 2013 into the 'AA' range, and to maintaining at least strong capitalization throughout 2012. We expect that TPGs's earnings will increase in 2012, with EBIT of €650 million to €700 million and an ROE of 8%-10%. We anticipate that, in its non-life business, underwriting performance will improve in 2012, leading to net combined ratios of 98% (the lower the combined ratio, the more profitable, while a ratio of more than 100% signifies an underwriting loss). We expect life underwriting performance to continue to benefit from sound margins in bancassurance distribution, reflected in a new-business margin of about 2%. Nevertheless, amid difficult capital market and operating conditions, we believe the group will only achieve moderate operating returns on embedded value of 4%-8%.

We could consider a negative rating action if TPG's profitability were lower than we expect, making the expected capital recovery less likely, or if its capitalization deteriorated to below what we regard as strong.

The likelihood of a positive rating action is remote at this stage, in our view.

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