OREANDA-NEWS. Fitch Ratings has affirmed Swiss reinsurer SIGNAL IDUNA Rueckversicherungs AG's (SIRe) Insurer Financial Strength (IFS) rating at 'A-'. The Outlook is Stable.

KEY RATING DRIVERS
The rating reflects the benefits of SIRe's ownership by IDUNA Vereinigte Lebensversicherung aG fuer Handwerk, Handel und Gewerbe (IDUNA), which is reflected in a two-notch uplift to its standalone assessment of 'BBB'. SIRe is viewed by Fitch as "very important" to IDUNA under the agency's group rating methodology.

The rating also reflects the company's strong capitalisation and sound underwriting practices in recent years. Offsetting rating factors include SIRe's small size and heightened operational risks, mainly emanating from its dependence on a small number of key staff.

Fitch believes that IDUNA is following a long-term strategy to develop SIRe into an integral and significant part of the overall group. This view is supported by the group's plan to expand SIRe's target markets once it has built up a sustainable base for its business and by IDUNA's capital injections in recent years. SIRe also benefits from organisational and IT support from the parent company, and from the group's relationship with European mutuals, which form the mainstay of SIRe's customer base.

SIRe's strong capitalisation is reflected in a regulatory solvency margin of 272% at end-2014 under the Swiss Solvency Test 2015. Fitch views this level of capitalisation as commensurate with the rating. Fitch regards SIRe's risk management, supported by its IDUNA group membership, as strong for a company of its size.

SIRe's gross written premiums (GWP) decreased to EUR120m in 2015 from EUR129m in 2014. For the period 2009-2014, the company had a five-year compounded annual GWP growth of 4%. SIRe has maintained the combined ratio at below 100% since 2010, reflecting its sound underwriting practices. Fitch expects SIRe's premium income to be stable in 2016 despite reinsurance rates remaining under pressure.

For life insurance, Fitch views IDUNA's resilience to persistent low yields as strong compared with that of the German life market as a whole. However, technical profitability continues to be constrained by the low interest rate environment. In non-life insurance, Fitch views IDUNA's consolidated underwriting profitability as good.

IDUNA group achieved robust bottom-line profitability in 2014 with a strong return on equity of 12.2% (2013: 9.3%). Fitch expects the group to have maintained its strong financial profile in 2015, with a return on equity of more than 7%, and for this trend to continue in 2016.

IDUNA is a member of the German SIGNAL IDUNA group, which is headed by four mutual insurance companies. In 2014, the SIGNAL IDUNA group had total GWP of EUR5.7bn, total assets of EUR50.4bn and employed 8,700 staff.

RATING SENSITIVITIES
Rating triggers for a downgrade include a diminishing of SIRe's strategic importance to IDUNA in Fitch's view and deterioration in the parent's credit quality, in particular through a significant decrease in capitalisation. Any significant weakening of SIRe's credit profile - as, for example, reflected in a Swiss Solvency Test result below 200% - could also lead to a downgrade, although Fitch views this as unlikely.

Rating triggers for an upgrade include SIRe becoming "core" to IDUNA in Fitch's view, a substantial and sustainable increase in IDUNA group's capitalisation and improvement in the group's non-life combined ratio to consistently below 100% together with an improvement in the operational performance of IDUNA's life insurance business. However, Fitch views an upgrade as unlikely in the near- to medium-term.