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Fitch Affirms SI Re's IFS Rating at 'A-'; Outlook Stable
August 24, 2017 / 11:07 AM / 4 months ago

Fitch Affirms SI Re's IFS Rating at 'A-'; Outlook Stable

(The following statement was released by the rating agency) LONDON, August 24 (Fitch) Fitch Ratings has affirmed Swiss reinsurer SIGNAL IDUNA Rueckversicherungs AG's (SI Re) Insurer Financial Strength (IFS) Rating at 'A-' (Strong). The Outlook is Stable. KEY RATING DRIVERS The rating reflects the benefits of SI Re's ownership by IDUNA Vereinigte Lebensversicherung aG fuer Handwerk, Handel und Gewerbe Group (IL group), as captured in a two-notch uplift to the Swiss insurer's standalone assessment of 'BBB'. Fitch views SI Re as "very important" to IL group under the agency's group rating methodology. The standalone rating reflects SI Re's strong capitalisation, small size and scale and good profitability. Fitch believes SI Re is an integral part of IL group. SI Re benefits from organisational and IT support from the parent company, and from the group's relationship with European mutuals, which form the mainstay of SI Re's customer base. Additionally, around 40% of SI Re's premiums in 2016 were related to the inter-group reinsurance programme. Fitch's views SI Re's capitalisation as strong. Under the agency's Prism factor-based model (Prism FBM), SI Re scores 'extremely strong' based on 2016 financials and the company reported a ratio of 263% in the Swiss solvency test (SST) as per 1 January 2017. SI Re has the option to draw down CHF50 million additional capital from the group if needed. We expect SI Re to maintain its strong capitalisation. SI Re is of small size and scale with total equity of EUR143 million and gross written premiums (GWP) of EUR122 million in 2016. It faces significant operational risk, mainly in the form of key-staff risk due to the company's small number of employees. The company has recorded sustained GWP growth in recent years, but restructuring measures at two large reinsurance programmes led to declining premium income in 2014 and in 2015. However, SI Re reported GWP growth of 2% in 2016 and for 2017 we expect SI Re's GWP to grow by 6-7% to around EUR130 million, reflecting a larger client base. Fitch views SI Re's financial performance as good. In 2016 SI Re achieved a Fitch-calculated combined ratio of 102.9% (2015: 103.3%). It has maintained stable combined ratios below 104% in the last six years. Fitch believes that SI Re's strong combined ratios were not achieved at the expense of imprudent reserve-setting and we expect SI Re to continue its good underwriting result in 2017. IL group's bottom-line profitability improved in 2016, driven by better underwriting results in both the life and non-life segments. In the non-life segment, IL group achieved an improved combined ratio of 100.0% in 2016 (2015: 100.9%), which compares favourably with the group's five-year average of 100.8%. The result in the life segment was negatively affected by an additional reserving requirement introduced by the German regulator due to consistently low interest rates (Zinszusatzreserve). This cost IL group EUR462 million in 2016, up from EUR354 million in 2015. IL group's PrismFBM score remained 'strong' and the group reported a regulatory Solvency II coverage ratio of 376% at end-2016 (including benefits from transitionals on technical provisions; 186% without these). IL group is a part of the German SIGNAL IDUNA group, which is headed by three mutual insurance companies. In 2016, the SIGNAL IDUNA group had total GWP of EUR5.5 billion, total assets of EUR54.6 billion and employed over 8,100 staff. RATING SENSITIVITIES Rating triggers for a downgrade include a diminishing of SI Re's strategic importance to IL group in Fitch's view and deterioration of the parent's credit quality, in particular through a significant decrease in capitalisation. Significant weakening of SI Re's credit profile, for example, as reflected in a SST result below 200%, could also lead to a downgrade, although Fitch views this as unlikely. Rating triggers for an upgrade include SI Re becoming "core" to IL group in Fitch's view. However, Fitch views an upgrade of SI Re as unlikely in the near- to medium-term. Contact: Primary Analyst Ralf Ehrhardt Director +44 20 3530 1551 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Dr Stephan Kalb Senior Director +49 69 7680 76 118 Committee Chairperson Chris Waterman Managing Director +44 20 3530 1168 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. 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