Fitch Affirms DEVK's IFS at 'A+' & Echo Re at 'A-'; Outlook Stable
At the same time, the agency has affirmed DEVK P&C's main subsidiaries' IFS ratings at 'A+' and the Switzerland-based reinsurance subsidiary Echo Rueckversicherungs-AG's (Echo Re) IFS rating at 'A-'. The Outlooks on the IFS ratings are Stable. A full list of rating actions is at the end of this commentary.
DEVK P&C and DEVK Life are the group's holding mutual insurers. Fitch considers all DEVK branded entities to be 'Core' members of the group and their ratings are based on a combined assessment.
The IFS ratings are not affected by Fitch's updated insurance notching criteria published 14 July 2015. The updated notching criteria appear in Section VI of the insurance master criteria report, "Insurance Rating Methodology".
KEY RATING DRIVERS
The affirmations reflect the group's robust capitalisation, DEVK P&C's strong reserving methodologies, and its healthy market position within the motor and household contents insurance lines. DEVK P&C's underwriting profitability continues to be pressured by Germany's competitive motor insurance market. However, DEVK P&C's average motor premium per policy has been increasing since 2010 and DEVK P&C's underwriting performance in motor has been improving since 2011. Fitch expects this trend to continue in 2015.
The affirmation of Echo Re reflects Fitch's view that the reinsurer continues to be "very important" to the DEVK group as defined in the agency's Insurance Rating Methodology. Fitch expects Echo Re to play a key role in DEVK's reinsurance operations outside Europe and to improve DEVK's geographical diversification. Fitch believes that Echo Re has built up a sustainable franchise in Asia and the Middle East. As a result of Echo Re's "very important" status to the group, its rating benefits from a three-notch uplift from its standalone profile.
Fitch views the DEVK group's capital generation as strong. DEVK P&C's shareholder funds were EUR1,611m at end-2014 and Fitch expects an increase of more than EUR50m in both 2015 and 2016. In Fitch's Prism factor-based model (Prism FBM) DEVK scored 'extremely strong' at end-2014.
Fitch believes that DEVK P&C's claims reserving methods are strong enough for it to withstand competitive pressures in Germany's motor insurance market without a loss of market share or deterioration in capitalisation. As the motor line generates over 50% of DEVK P&C's non-life gross written premium (GWP), the development of motor premium rates will significantly influence DEVK's underwriting profitability. The DEVK group is one of Germany's top 10 motor insurers measured by premium income. Fitch estimates that German motor GWP grew by 4% in 2014 and expects further rate increases for 2015.
DEVK P&C's consolidated net investment return rate decreased to 4.0% in 2014 from 4.4% in 2013, primarily driven by less realised capital gains in life operations. DEVK Life and DEVK P&C's life insurance entity reported investment return rates of 4.3% and 4.2%, respectively, falling short of the German life market's average of 4.6%. However, the market average is driven by realising capital gains for the expenses of the additional mathematical reserve (so called 'Zinszusatzreserve').
The DEVK group reported GWP growth of 9.0% to EUR3.1bn in 2014, which was more than Fitch's expectation for the German primary insurance market of 2.8%. As the German motor market continues to grow, DEVK's GWP increase has remained in line with Fitch's growth benchmarks relative to the market and is therefore viewed as neutral for the ratings.
Echo Re improved its franchise in 2014 and Fitch expects this to continue for 2015. In 2014, Echo Re's GWP increased to CHF71m from CHF49m in 2013.
In its 2014 consolidated accounts, DEVK P&C had total assets of EUR11.0bn and DEVK Life had total assets of EUR5.7bn. The DEVK group had about 4,000 staff at end-2014.
RATING SENSITIVITIES
Key rating triggers for an upgrade would include a substantial improvement of DEVK life operations' market position, substantial improvement in DEVK's non-life underwriting profitability and resilience to competitive pressure in the German motor insurance market. However, Fitch views an upgrade of DEVK's ratings as unlikely in the near to medium term.
Key rating triggers for a downgrade of DEVK include the Prism FBM score falling to 'very strong', a significant weakening of reserving methodologies or a substantial decrease in motor premiums due to pricing pressure from competition.
The key rating trigger for an upgrade of Echo Re would be that its strategic importance for DEVK increases significantly, in Fitch's view. However, the agency views this as unlikely in the near to medium term.
A key rating trigger for a downgrade of Echo Re would be reduced strategic importance of the company within the group. This may be manifested through a reduction in the importance of Echo Re within DEVK's reinsurance operations or of reinsurance operations as a whole within the DEVK group.
The following seven entities had their IFS ratings affirmed at 'A+'. Echo Re's IFS rating was affirmed at 'A-'. All eight entities have Stable Outlooks.
Deutsche Eisenbahn Versicherung Sach- und HUK-Versicherungsverein a.G. Betriebliche Sozialeinrichtung der Deutschen Bahn
DEVK Deutsche Eisenbahn Versicherung Lebensversicherungsverein a.G. Betriebliche Sozialeinrichtung der Deutschen Bahn
DEVK Rueckversicherungs- und Beteiligungs-AG
DEVK Allgemeine Versicherungs-AG
DEVK Allgemeine Lebensversicherungs-AG
DEVK Rechtsschutz-Versicherungs-AG
DEVK Krankenversicherungs-AG
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