Zurich Insurance Group’s conditional bid to buy RSA Insurance Group plc for nearly $9 billion drew an outlook change from Standard & Poor’s on Friday, from positive to stable, as the rating agency affirmed Zurich’s “AA-” financial strength ratings.

“If the insurers pursue this transaction, we expect that our assessment of Zurich’s financial risk profile will not fall below a strong level and that its competitive position will remain extremely strong; this is backed by our view of Zurich’s ability to replenish capital through strong earnings,” S&P said in an announcement.

Explaining the outlook change, S&P said, “We believe the potential transaction poses significant integration and execution risk, could increase the group’s financial leverage ratio, and could temporarily lower capital adequacy below the ‘AA’ level if completed.”

Separately, S&P put RSA’s “A” ratings on CreditWatch with positive implications as a result of the conditioned bid. “If a formal offer is made and Zurich acquires RSA, we could raise the ratings on RSA based on the potential ratings uplift for group support,” S&P said.

A firm bid is subject to issues including RSA’s pension deficit and regulatory matters, Zurich spokesman Riccardo Moretto told Bloomberg last week.

“If a formal offer is made, resulting in Zurich acquiring RSA, we could raise the ratings on RSA by up to

two notches,” S&P said, adding that the rating agency considers a one-notch upgrade to be “the most likely outcome of the closing of the deal.”

“If no formal offer is made, we are likely to affirm the ratings on RSA,” S&P said.

Source: Standard & Poor’s