(The following statement was released by the rating agency)
July 16 - Fitch Ratings has affirmed Germany-based life insurer VOLKSWOHL BUND LEBENSVERSICHERUNG a.G.'s (VBL) Insurer Financial Strength (IFS) rating at 'AA-' with a Stable Outlook.
The rating reflects VBL's strong capitalisation, business position within the independent financial advisors (IFAs) and sales organisations markets, strong gross written premium (GWP) growth, and sound expense ratios. Negative rating drivers are the low level of diversification in terms of geography and distribution channels.
VBL's consolidated shareholders' funds increased to EUR116.8m at end-2011 from EUR106.5m at end-2010. The company's fund for future appropriation, including terminal bonus funds, increased to EUR512.1m in 2011 (2010: EUR499.2m), and Fitch expects stable development in 2012. The agency believes capitalisation will remain strong, on the basis of its risk-adjusted assessment, as well as the regulatory solvency ratio, which was 189% at end-2011.
In 2011 VBL continued its strong growth. While the German life market suffered a decline of 4.6% in GWPs, VBL's premium income increased by 7.0% in 2011. The market's decline was driven by lower single premium volumes (-17.4%) on which VBL is not as reliant as the market as a whole. However, VBL's single premium business increased by 12.2% in 2011.
VBL achieved a net investment return rate (NIRR) of 3.8% in 2011 (2010: 4.7%) while the market reported a NIRR of 4.1% (2010: 4.3%). The decrease was driven by write-offs (EUR50m) and the low investment yield environment. Fitch expects that VBL's NIRR will recover and be in line with the market average in 2012.
VBL continues to generate strong operating cash flow, which reduces liquidity risk. Expense and mortality profits have been consistently strong. In 2011, VBL's administration expense ratio was 2.0% and the acquisition expense ratio was 4.9%, better than the market averages of 2.4% and 5.0%, respectively. Fitch expects VBL's 2012 administration expense ratio to be better than the market average.
VBL primarily serves sales organisations and IFAs. Geographical diversification is low as VBL operates only in Germany.
Given VBL's current rating level, Fitch views an upgrade of the rating as unlikely in the near to mid-term as the level of VBL's diversification in terms of geography and distribution channels constrains VBL's credit profile. Key rating drivers for a downgrade include if VBL experienced a deteriorated capital position with a solvency margin below 170%, weakened market position or a significant decline in GWP.
VBL is the holding company of the VOLKSWOHL BUND group (VBG). It has the legal form of a mutual and is VBG's most important operating entity, with total assets of EUR8.5bn, equating to 99% of the group's total in 2011. The company focuses on life insurance for private customers and small- and medium-sized enterprises in Germany. VBL generated GWP of EUR1.2bn and its non-life subsidiary generated GWP of EUR72.7m in 2011.
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