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3 years ago
Fitch Affirms Nuernberger's IFS at 'A+'; Outlook Stable
November 20, 2014 / 10:58 AM / 3 years ago

Fitch Affirms Nuernberger's IFS at 'A+'; Outlook Stable

(The following statement was released by the rating agency) FRANKFURT/LONDON, November 20 (Fitch) Fitch Ratings has affirmed German insurers Nuernberger Lebensversicherung AG's (NLV), Nuernberger Allgemeine Versicherung AG's (NAV) and Nuernberger Krankenversicherung AG's (NKV) Insurer Financial Strength (IFS) ratings at 'A+'. The agency has also affirmed their holding company Nuernberger Beteiligungs-Aktiengesellschaft's (NB) Issuer Default Rating (IDR) at 'A-'. The Outlook on all ratings is Stable. NB's EUR100m subordinated debt has been affirmed at 'BBB-'. KEY RATING DRIVERS Fitch views NLV, NAV and NKV as core to the Nuernberger group, and their ratings are therefore based on a combined group assessment, under the agency's group rating methodology. The affirmation reflects the group's strong capitalisation, its strong results, its leading position in the German unit-linked life and disability market, and its resilience to a persistently low interest rate environment compared with many of its competitors. Offsetting these positive rating factors is the group's low geographical diversification, its above-market average exposure to equity investments and the current difficult operating environment for German life insurers. Although NLV accounts for more than 80% of the group's total assets and regulatory group solvency requirement, German solvency rules allow only limited recognition of NLV's funds for future appropriation (FFA) within the group solvency calculation. If the full FFA were to be included as it is in the individual entity solvency figures, the group's solvency ratio would be more than 160%, which Fitch regards as strong. This compares with the group's reported solvency margin of 126% at end-2013 (2012:121%). The group's operating leverage was 10.3x at end-2013 (2012: 10.2x), which Fitch views as a very strong level, based on the agency's sector credit factor median guidelines. This is despite NLV's regulatory solvency margin having declined to 151% at end-2013, from 167% at end-2012. NLV's FFA - measured as a proportion of actuarial reserves - was at 8.6% at end-2013, well in excess of Fitch's estimate for the German market average of 5.7%. Fitch expects the group to maintain its strong capitalisation at end-2014. The group reported strong results with pre-tax income of EUR130m in 9M14 (9M13: EUR81.5m). The increase was driven by higher investment income and a normalised level of weather-related losses after exceptionally high natural catastrophe activity in Germany in 2013. The group reported a strong gross combined ratio of 92% for 9M14, down from 100% for 9M13. The Nuernberger group's equity exposure is higher than the average for German primary insurers. As a proportion of total investments, the group's exposure to equity investments stood at 8.4%, significantly higher than the market's average of 3% at end-2013, meaning that the group is somewhat more exposed to market volatility than peers. The Nuernberger group had total assets at end-1H14 of EUR28.1bn (end-2013: EUR26.9bn). Gross written premiums (GWP) at end-1H14 were EUR1.3bn for the life segment, EUR0.3bn for the non-life segment and EUR0.1bn for the health segment. RATING SENSITIVITIES An upgrade of the ratings in the near- to medium-term is unlikely unless the group increases its size/scale and improves diversification, while maintaining strong capitalisation. Key rating triggers for a downgrade include weak overall profitability on a sustained basis, which may be manifested in a return on equity below 6% and/or a sustained material erosion in capitalisation with NLV's solvency margin falling below 150%. Contact: Primary Analyst Dr. Christoph Schmitt Director +49 69 7680 76 121 Fitch Deutschland GmbH Taunusanlage 17 60325 Frankfurt Secondary Analyst Dr. Stephan Kalb Senior Director +49 69 7680 76 118 Committee Chairperson Martyn Street Senior Director +44 20 3530 1211 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria, 'Insurance Rating Methodology', dated 4 September 2014, are available at www.fitchratings.com. Applicable Criteria and Related Research: Insurance Rating Methodology here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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