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Fitch Affirms DEVK's IFS at 'A+'; Echo Re at 'A-'; Outlook Stable
July 13, 2017 / 2:47 PM / in 8 days

Fitch Affirms DEVK's IFS at 'A+'; Echo Re at 'A-'; Outlook Stable

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(The following statement was released by the rating agency) FRANKFURT/LONDON, July 13 (Fitch) 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+' (Strong). 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 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 very strong capitalisation, its strong business profile and DEVK P&C's strong reserving methodologies. DEVK P&C's underwriting profitability remains pressured by the high proportion of motor insurance in its non-life segment. The affirmation of Echo Re reflects Fitch's view that, despite the weak underwriting results for 2016, the reinsurer continues to be "very important" to the DEVK group as defined in our group rating methodology. Fitch expects Echo Re to continue to play a key role in DEVK's reinsurance operations outside Europe and to improve the group's geographical diversification. Fitch believes that Echo Re has built up a sustainable franchise. As a result Echo Re's rating benefits from a three-notch uplift from its standalone profile. Fitch regards DEVK's capitalisation as very strong with net leverage at 2.2x and operating leverage at 12.2x. In Fitch's Prism factor-based model (Prism FBM) DEVK scored 'extremely strong' based on 2016 results, which we expect to be maintained in 2017. Our view of capitalisation is also supported by the group's regulatory Solvency II ratio at end-2016 of 209% (excluding transitional measures on technical provisions). Including transitional measures, the reported regulatory Solvency II ratio was 284%. DEVK's business profile is strong. It is a medium-sized player in the German insurance market and has a top 10 position in the German motor market measured by premium income. DEVK's earnings are well diversified by line of business as it operates across all primary insurance segments, and it also writes international reinsurance business. Fitch views DEVK's financial performance and earnings as strong. The reported German GAAP net combined ratio was 95.8% for 2016, a significant improvement from 99.1% in 2015. Because DEVK experienced slightly unfavourable claims development in 1H17, we expect a small weakening in the net combined ratio for 2017. As a mutual group, DEVK P&C retains all profit and builds up its capital base, which depresses the return on equity. DEVK P&C reported a return on equity of 4.5% for 2016, deteriorating from 5.3% in 2015. Fitch believes that DEVK P&C's claims reserving buffers 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) in primary insurance, the development of motor premium rates will significantly influence DEVK's underwriting profitability. We estimate that German motor GWP grew 2% in 2016 and expect a small increase of 1% for 2017. RATING SENSITIVITIES Key rating triggers for a downgrade of the DEVK group include the Prism FBM score falling to low in the 'very strong' category or a significant weakening of reserving methodologies. Key rating triggers for an upgrade include substantial improvements in DEVK group's life operations' market position and DEVK's non-life underwriting profitability. However, Fitch views an upgrade of DEVK's ratings 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 key rating trigger for an upgrade of Echo Re would be a significant increase, in Fitch's view, in its strategic importance for the DEVK group. However, we view this as unlikely in the near to medium term. Echo Re's IFS rating has been affirmed at 'A-'. The following seven entities' IFS ratings have been 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 Contact: Primary Analyst Dr Christoph Schmitt Director +49 69 768076 121 Fitch Deutschland GmbH Neue Mainzer Strasse 46-50, D-60311 Frankfurt am Main Secondary Analyst Dr Stephan Kalb Senior Director +49 69 768076 118 Committee Chairperson Harish Gohil Managing Director +44 20 3530 1257 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. 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