OREANDA-NEWS. Fitch Ratings has affirmed German mutual life insurer ALTE LEIPZIGER Lebensversicherung auf Gegenseitigkeit's (ALL) and its non-life subsidiary ALTE LEIPZIGER Versicherung Aktiengesellschaft's (ALV) Insurer Financial Strength (IFS) ratings at 'A+'. The Outlooks are Stable.

ALL is the main life insurance entity of the group and also acts as the top holding company of the Alte Leipziger insurance group. Fitch considers ALL and ALV to be 'Core' members of the group, and their ratings are based on a combined assessment.

KEY RATING DRIVERS
The ratings reflect the group's strong capitalisation, continued healthy investment returns and sustainable market position in the disability line and corporate pension scheme business. Offsetting key rating drivers include the group's lack of geographical diversification and the long-term adverse implications of continued low interest rates for German life insurers.

Alte Leipziger's Fitch Prism factor-based model (Prism FBM) score was 'extremely strong' at end-2014. The group's solid capitalisation is demonstrated by a regulatory group solvency margin of 239% at end-2014 (2013: 217%). Fitch expects the Alte Leipziger group to maintain its strong capitalisation with a Prism FBM score of 'extremely strong' at end-2015.

Fitch views the group's capital resources as strong. ALL's shareholder funds (measured as a proportion of actuarial reserves) were 4.1% at end-2014, above the market average of 1.8%. The funds for future appropriation, including terminal bonus funds, (also measured as a proportion of actuarial reserves) were 6.0%, slightly stronger than the market average of 5.6%.

Fitch considers ALL to be better prepared for servicing its guaranteed interest rate (GIR) payments while investment yields remain low than many of its competitors. This is due to its longer asset duration, the high proportion of disability business in its books, and its high level of equity and funds for future appropriation.

Fitch calculates that if low investment yields persist, ALL would be able to make GIR payments from investment income for the next 20 years without the need for other profit sources (assuming a reinvestment yield of only 2%). However, current operating conditions put pressure on German life insurers' profitability.

In 2014, the Alte Leipziger group achieved an exceptionally high return on equity (RoE) of 17.5% (2013: 11.4%) because of a taxation benefit. Fitch expects the RoE to return to the 2013 level in 2015. Fitch expects further deterioration in the group's profitability in the upcoming years, driven by the low investment yield environment.

Based on Fitch's analysis, ALL is one of Germany's top 10 providers of disability insurance. ALL also writes significant amounts of corporate pension scheme business, which supports the strong development of its regular premium business. The group only distributes its products in Germany, which limits its geographical diversification. A focus on the domestic market is typical for medium-sized companies such as ALL.

ALL reported gross written premiums (GWP) growth of 16.0% in 2014 (2013: 5.9%), exceeding German life GWP growth of 3.3% (2013: 4.0%). ALL's strong GWP was driven by expanded single premium business, and Fitch expects growth to be more in line with the market average for 2015.

Alte Leipziger group has reduced its equity exposure. As a proportion of total investments, the group's exposure to equity investments stood at 4.2% (2013: 7.4%), and was almost in line with the German life insurance market average of 3.5% (2013: 3.3%) at end-2014.

The Alte Leipziger group as a whole reported GWP of EUR2.6bn and had total assets of EUR23.0bn at end-2014. Other than the insurance business, the group undertakes building society and investment fund business. The group has a cooperation agreement with the mutual health insurer HALLESCHE Krankenversicherung auf Gegenseitigkeit.

RATING SENSITIVITIES
An upgrade in the near to medium term is unlikely unless the group increases its size/scale and improves diversification, while maintaining strong capitalisation.

Key triggers for a downgrade include a depleted capital position (as evidenced, for example, by the Prism FBM score falling to 'strong' and expected to stay at that level) and a loss of the group's strong market position in the disability and corporate pension scheme business.