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CCR RE Restricted Tier 1 Deeply Subordinated Notes Rated ‘BB+’

          LONDON (S&P Global Ratings) June 6, 2018--S&P Global Ratings today assigned its 'BB+' long-term issue credit rating to the Restricted Tier 1 (RT1) notes to be issued by CCR RE. The issue rating is subject to our receipt and review of the bonds' final terms and conditions. 
          The rating on the bonds is four notches below the long-term issuer credit rating (ICR) on CCR Re (A-/Stable); one notch to reflect the notes' deeply subordinated status to senior bondholders, one notch to reflect the risk of potential write down of principal, and two notches to reflect the mandatory and unconditional optional interest cancellation features. We think the notes' various mandatory and unconditional optional coupon cancellation triggers increase the risk of coupon nonpayment on a going-concern basis, and considering the potential loss of principal for noteholders with the mandatory write down on a going concern basis.
          Our rating and equity content assessment reflects our understanding that:
          - The bonds are deeply subordinated to senior creditors;
          - The issuer has unconditional discretion to cancel interest payments;
          - Interest cancellation is mandatory under certain circumstances, including if the solvency condition is not met, or under Solvency II regulation CCR RE's own funds (capital resources) are not sufficient to meet either the solvency capital requirement (SCR) and/or minimum capital requirement (MCR);
          The bonds will be eligible as RT1 capital under Solvency II; and
          The notes will be written down if the amount of own fund items eligible to cover the SCR is equal to or less than 75% of the SCR; the amount of own fund items eligible to cover the MCR is equal to or less than the MCR; or a breach of the SCR has occurred and has not been remedied within three months from the date on which the breach was first observed.
          As the company's regulatory capital position evolves, we could alter the notching on these instruments to reflect changes in the likelihood of default. A sustainable and significant increase in CCR RE's SCR coverage could reduce the notches between the issue rating on the notes and the ICR, while material deterioration in the group's capital position or increased sensitivity to stress could led us to increase the notching by one or more.
          CCR RE's management has publicly indicated its target to maintain its SCR coverage between 180 and 220%. We would not envisage changing the notching of this instrument if the group's SCR coverage remains within its target range (it was 190% in Q4 2017). However, we could consider increasing the notching if SCR coverage drops lastingly below its target (180%) or if the group's risk profile changes in a way that the SCR ratio would become structurally more volatile.
          However, given the high importance of CCR RE to the group, we expect that the group will support the hybrid payments in a stress scenario.
          We understand that the notes are perpetual, but are callable at par at first call date. The notes carry a fixed interest rate, which will be reset on the first call date and on each reset date thereafter. There is no step-up in the coupon rate if the bonds are not called at the first call date.
          CCR RE has the option to redeem the bonds at par before the first call date under specific circumstances, such as for changes in tax, regulatory, or rating agency treatment. Any such early redemption within the first five years must be replaced by an instrument of at least the same quality.
          We expect to classify the bonds as having intermediate equity content, subject to our receipt and review of the bonds' final terms and conditions. Hybrid capital instruments with intermediate equity content can comprise up to 25% of total adjusted capital (TAC), which is the basis of our consolidated risk-based capital analysis of insurance companies. The inclusion in TAC is also subject to the issue being considered eligible for regulatory solvency regarding both amount and terms and conditions.
          We think that CCR RE will use the proceeds for the company's general corporate purposes (which may include, without limitation, the refinancing of existing T2 debt, or strengthening its capital base to pursue strategic business development).