OREANDA-NEWS. Fitch Ratings has affirmed Germany-based DEVK Deutsche Eisenbahn Versicherung Sach- und HUK-Versicherungsverein a.G. Betriebliche Sozialeinrichtung der Deutschen Bahn's (DEVK P&C) and DEVK Deutsche Eisenbahn Versicherung Lebensversicherungsverein a.G. Betriebliche Sozialeinrichtung der Deutschen Bahn's (DEVK Life) Insurer Financial Strength (IFS) ratings at 'A+'.

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 available at the end of this commentary.

DEVK P&C and DEVK Life are the DEVK group's holding mutual insurers. Fitch considers all DEVK branded entities to be 'Core' members of the group and their ratings are based on the agency's assessment of the combined group.

KEY RATING DRIVERS
The affirmations reflect the DEVK group's robust capitalisation, DEVK P&C's strong reserving methodologies and 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 underwriting performance in motor has been improving since 2011. Fitch expects this trend to have continued in 2015.

The affirmation of Echo Re reflects Fitch's view that, despite the agency's expectations of weak underwriting results for 2015, 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 continue 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 Echo Re's 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 the funds to have grown to about EUR1,700m in 2015 and to further increase by more than EUR50m in 2016. In Fitch's Prism factor-based model (Prism FBM) DEVK scored 'extremely strong' based on 2014 results, which we expect to have been maintained in 2015.

Fitch believes that DEVK P&C's claims reserving methods are strong enough for the insurer 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 by premium income. Fitch estimates that German motor GWP grew 2%-3% in 2015 and expects a small increase of 1% for 2016.

Fitch expects DEVK P&C's consolidated net investment return rate to have increased to up to 4.5% in 2015 (2014: 4%), and DEVK Life and DEVK P&C's life insurance entity to have registered stable investment return rates in 2015 (2014: 4.3% and 4.2%, respectively).

In its 2014 consolidated accounts, DEVK P&C had total assets of EUR11bn 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 substantial improvements of DEVK group life operations' market position and of 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 the DEVK group 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 a significant increase in its strategic importance for the DEVK group, 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 the DEVK group's reinsurance operations or of reinsurance operations as a whole within the DEVK group.

The following seven entities are affirmed at IFS 'A+'. Echo Re's IFS rating is affirmed at 'A-'. All eight entities have Stable Outlooks.

DEVK 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