OREANDA-NEWS. Fitch Ratings has assigned Austrian life insurer Skandia Lebensversicherungs AG (Skandia Austria) an Insurer Financial Strength (IFS) rating of 'BBB-' with a Stable Outlook.

KEY RATING DRIVERS
The rating reflects Skandia Austria's strong capitalisation and profitability in recent years. Offsetting rating factors include the small size and market position of the insurer and its current run-off mode.

Skandia Austria is a pure unit-linked life insurer with a total of EUR1.4bn in assets at end-2015. The company was placed into run-off at end-2012. As a result of a maturing back-book we expect Skandia Austria's gross written premiums (GWP), which amounted to EUR136m in 2015, to decline significantly, at least until 2018, even if the company starts writing new business.

In 2015, the German financial services group FWU AG proposed to acquire Skandia Austria, which received regulatory approval in February 2016. FWU AG will relaunch Skandia Austria's new business in 2016. We expect premium income of EUR110m for 2018 if the new business is relaunched successfully. An effective implementation of Skandia Austria's business plan would be positive for the rating.

We regard Skandia Austria's capitalisation as strong, as measured by our Prism factor-based model (Prism FBM) score of 'extremely strong', based on end-2015 data. Furthermore, the company's solvency margin has exceeded 150% in recent years. Our view on capitalisation is, however, partly constrained by a weak asset leverage of 43x, which is outside the investment-grade range. Fitch expects Skandia Austria will report a strong solvency II margin for 2016.

Skandia Austria's profitability is strong. The company reported a net income return on equity (RoE) of 31% for 2015, extending the trend of a RoE in excess of 25% for the period 2011-2015. Skandia's pre-tax return on assets (RoA) was 1% for 2015, in line with its trend of above 1% for the period 2011-2014. Fitch expects RoA to decline slightly in 2016, but to remain above 0.5%.

Skandia Austria's creditworthiness is unaffected by continuing low investment yields because its interest-bearing liabilities are less than 1% of total assets - as is typical for a pure unit linked provider.

RATING SENSITIVITIES
A successful implementation of the business plan - especially in terms of writing new business - is key to an upgrade while sharper-than-expected deterioration of the in-force business with an annual GWP decline consistently above 10% could lead to a downgrade. A RoA consistently below 0.6% could lead to a downgrade.