OREANDA-NEWS. April 13, 2015. Fitch Ratings has affirmed Gothaer Allgemeine Versicherung AG's (GA) and Gothaer Lebensversicherung AG's (GL) Insurer Financial Strength (IFS) ratings at 'A' and Long-term Issuer Default Ratings (IDR) at 'A-'. The Outlooks are Stable. Fitch has also affirmed GA's EUR250m subordinated debt at 'BBB'.

KEY RATING DRIVERS
The affirmation reflects Gothaer group's (GG) strong and resilient capitalisation, well-diversified group structure and Fitch's expectations that investment return and operating profitability will be maintained close to 2013 levels.

At-end 2013, GG reported a regulatory solvency margin of 175% (2012: 187%) and the agency expects capitalisation to have improved in 2014. Fitch considers GG's capital as supportive of its ratings.

Fitch considers GL and GA as core to, and fully integrated with GG, as they have the same brand, management and distribution channels, as well as similar clients and back-office operations. The ratings reflect GG's strong business position and well-developed risk management, which are partly offset by competitive German market conditions and by GG's investment portfolio, which is more volatile than its peers. However, investment returns and unrealised capital gains performed strongly during 2013 and are expected to have remained at similar levels in 2014.

Fitch notes that GG's asset duration has been shorter than the market average in the past few years. However, we expect due to the persisting low interest rate environment, GG will bring its asset duration closer to the market average. GG reported subordinated debt exposure of EUR1.1bn at end-2013 (2012: EUR1.2bn), which was 4% (2012: 4.8%) of its total invested assets (by market value). Fitch expects that GG further reduced its subordinated debt exposure in 2014.

Fitch expects GA's net combined ratio to have normalised in 2014 to around 97% following a net combined ratio of 100.9% in 2013 (2012: 97.4%), which was largely driven by higher than average catastrophe-related claims.

GG is a mutual insurance group, which generated gross written premiums (GWP) of EUR4.3bn in 2013 (2012: EUR4.2bn), making it one of the larger German mid-sized insurance groups. GG focuses on private customers and small- and medium-sized enterprises. Products are distributed via tied agents and independent financial advisors and, to a limited degree, through co-operating banks. With GWP of EUR1.5bn, GA is GG's main non-life insurer. GG's two life carriers, GL (GWP of EUR1.2bn) and Asstel Leben (GWP of 0.2bn), were merged into one entity at the beginning of 2014. The health insurer, Gothaer Krankenversicherung AG, constitutes the third group segment with GWP of EUR0.8bn.

RATING SENSITIVITIES
Key rating triggers for an upgrade include an improved level of profitability in life and investment operations while maintaining a group return on equity above 7.5% on a sustained basis. GG would also need to maintain a score of "very strong" in Fitch's Prism factor-based model (FBM).

Key rating triggers for a downgrade include a decline in capitalisation (with the FBM score falling to "strong"), a weakening of GG's market position and a net combined ratio of above 105%.