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Fitch Affirms Stuttgarter's IFS at 'A'; Outlook Stable
November 28, 2017 / 11:21 AM / 17 days ago

Fitch Affirms Stuttgarter's IFS at 'A'; Outlook Stable

(The following statement was released by the rating agency) FRANKFURT/LONDON, November 28 (Fitch) Fitch Ratings has affirmed Stuttgarter mutual insurance group's (Stuttgarter) Insurer Financial Strength (IFS) rating at 'A' (Strong). The Outlook is Stable. Stuttgarter Lebensversicherung a.G. (SLV) is the holding company and main operating entity of the Stuttgarter. KEY RATING DRIVERS Stuttgarter's 'A' rating reflects its strong capitalisation and strong investment performance. The rating is constrained by Stuttgarter's small size and limited geographical and product diversification as well as the group's high exposure to interest rate risk. Fitch considers Stuttgarter's capitalisation as strong and supportive of its ratings. Based on Fitch's Prism Factor-Based Model (FBM), the group's capital score was 'Very Strong' at end-2016. Other sector credit factors for capitalisation were also strong. At end-2016, the Solvency II ratio was 136% for the group, without an allowance for transitional measures. Stuttgarter has no financial debt outstanding. We expect capitalisation to weaken, but to remain supportive of the rating. As with many German life insurers, the average duration of assets is shorter than that of liabilities in Stuttgarter's life segment. We view this as negative for the rating, since it increases exposure to interest rates. We believe the group's duration gap is in line with the market average. The underwriting result in the life segment improved in 2016, supported by better risk margins. The additional expenses stemming from the need to fund additional regulatory reserve requirements (Zinszusatzreserve; ZZR) were mainly financed by realisation of capital gains. However, due to a positive one-off effect from regulatory adjustments made at the beginning of 2016, Stuttgarter set aside EUR56 million for ZZR in 2016, less than in 2015 (EUR90 million). In the non-life segment, the net combined ratio improved to 84% in 2016 from 90% in 2015. Stuttgarter reported EUR20 million net profit for 2016 after a small loss in 2015 SLV's net investment return remained high at 4.7% in 2016 (2015: 5.2%). SLV's off-balance-sheet unrealised capital gains represented 13% (market: 16%) of the company's total investments at end-2016, unchanged from end-2015. These are well diversified across different asset classes, which Fitch views positively. Compared with other German life insurers, Stuttgarter has relatively high exposure to equity investments. The proportion of equity investments (consolidated) was 6.6% (2015: 6.9%) of its total investments at end-2016. Fitch believes this makes Stuttgarter more vulnerable to equity market volatilities. Stuttgarter's EUR3.6 billion fixed-income investments are of high credit quality. Stuttgarter has a strong position in the German IFA market, which Fitch views positively. However, its concentration on this distribution channel and limited geographical diversification heighten the insurer's exposure to domestic economic and regulatory changes. RATING SENSITIVITIES Given difficult operating conditions in the German life market, an upgrade is unlikely in the short to medium term. Key ratings triggers for a downgrade include weakening capitalisation as measured by a decline in the Prism FBM score into the lower range of the 'Strong' category. Contact: Primary Analyst Dr Stephan Kalb Senior Director +49 69 768076 118 Fitch Deutschland GmbH Neuer Mainzer Strasse 46-50 D-60311 Frankfurt am Main Secondary Analyst Dr Christoph Schmitt Director +49 69 768076 121 Committee Chairperson Federico Faccio Senior Director +44 20 3530 1394 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. 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