OREANDA-NEWS. Fitch Ratings has affirmed Achmea Bank N.V.'s (A/Negative/F1) mortgage covered bonds at 'AAA'. The Outlook is Stable.

KEY RATING DRIVERS
The rating reflects Achmea's Long-Term Issuer Default Rating (IDR) of 'A', an unchanged D-Cap of 4 notches (moderate risk) and the 75% asset percentage (AP) that Fitch takes into account in its analysis, which provides more protection than the 84.0% breakeven AP for the 'AAA' rating. The breakeven AP supports a 'AA' tested rating on a probability of default basis and a two-notch recovery uplift to a 'AAA' rating. The Stable Outlook reflects a one-notch cushion against a downgrade of Achmea's IDR.

The unchanged D-Cap of 4 reflects what Fitch assesses to be the weak links for the programme in a discontinuity scenario, which are jointly the liquidity gap and systemic risk, systemic alternative management and cover-pool specific alternative management components. The programme is classified as dormant as no covered bonds were issued for more than seven years.

The asset segregation and privileged derivatives components are assessed by Fitch as very low and low, respectively. The programme's asset segregation is two categories better than most of domestic peers due to commingling risk being mitigated by a collection foundation account that is set up as a bankruptcy remote foundation. Systemic alternative management is one category worse than the sector as Achmea's covered bond programme is not registered under the Dutch covered bond legislation. As a result, no IDR uplift is applicable.

The 'AAA' breakeven AP is equivalent to a breakeven overcollateralisation (OC) of 19.0% and is driven by the asset disposal loss component of 19.4%. The 'AAA' breakeven AP of 84.0% is an increase from 78.0% in May 2015. The improvement is partly due to smaller credit losses calculated on the pool and a shorter remaining maturity of the assets leading to a positive impact on asset prices in Fitch's cash-flows model. In addition, the breakeven AP in 2015 included a buffer for potential deterioration of the pool's credit quality, which has been removed this year in light of the stable composition of the pool, its low credit risk and the short remaining maturity of the only outstanding covered bond.

The 'AAA' credit loss component has decreased to 5.0% from 5.4%. This component represents the impact on the breakeven AP from a lower 13.2% weighted average default rate (WAFF) and a higher 63.8% weighted average recovery rate (WARR) for the mortgage cover assets in a 'AAA' scenario compared with a WAFF of 13.7% and WARR of 62.3% in the previous analysis. The primary driver for the higher WARR is a lower WA indexed LTV. The credit loss is lower than other Fitch-rated Dutch covered bonds because of a low LTV ratio, a highly seasoned cover pool and a lower than average debt-to-income ratio.

The cash flow valuation reduces the 'AAA' breakeven OC by 3.4%, due to the longer weighted average life of the assets versus the liabilities and excess spread available in the programme.

The breakeven AP considers whether timely payments are met in a 'AA' scenario and tests for recoveries given default of at least 91% in a 'AAA' scenario.

RATING SENSITIVITIES
The 'AAA' rating would be vulnerable to downgrade if any of the following occurs: (i) Achmea's IDR is downgraded by two or more notches to 'BBB+' or below; or (ii) the number of notches represented by the D-Cap is reduced to two or lower; or (iii) the AP that Fitch considers in its analysis increases above Fitch's 'AAA' breakeven level of 84.0%.

The Fitch breakeven AP for the covered bond rating will be affected, among others, by the profile of the cover assets relative to outstanding covered bonds, which can change over time, even in the absence of new issuance. Therefore the breakeven AP to maintain the covered bond rating cannot be assumed to remain stable over time.