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Fitch Affirms Alte Leipziger's IFS at 'A+'; Outlook Stable
May 20, 2014 / 4:53 PM / 4 years ago

Fitch Affirms Alte Leipziger's IFS at 'A+'; Outlook Stable

(The following statement was released by the rating agency) FRANKFURT/LONDON, May 20 (Fitch) Fitch Ratings has affirmed 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 Outlook is Stable. ALL is the holding company of the Alte Leipziger insurance group (ALG). KEY RATING DRIVERS The ratings reflect ALG'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, its above-market average exposure to equity investments and the current difficult operating environment for German life insurers. Fitch views ALG's capital resources as strong. ALL's shareholder funds (measured as a proportion of actuarial reserves) were 3.9% at end-2013 (2012: 3.7%), above the market average, which Fitch estimates to have been about 1.8% (2012: 1.7%). Funds for future appropriation, including terminal bonus funds, (again measured as a proportion of actuarial reserves) were in line with the market average. ALG's solid capitalisation is further demonstrated by the regulatory group solvency margin of 217% at end-2013 (2012: 198%) and Fitch expects ALG to maintain its strong capitalisation in 2014. ALL reported a net investment return rate of 5.5% for 2013 (2012: 5.4%), higher than Fitch's estimate for the German life insurance market of 4.7% (2012: 4.6%). With its strong investment results, ALL has generated a significant buffer between investment earnings and guaranteed interest rate payments over the past few years. Fitch expects ALL's net investment earnings to decrease for 2014 because 2013's investment income benefited from significant realised gains from fixed income investments and investment gains in equity holdings. However, further expenses for the additional actuarial reserve (Zinszusatzreserve) may result in further realisations of capital gains within fixed income investments if the low investment yield environment persists. Based on Fitch's analysis, ALL is one of the top 10 providers of disability insurance in Germany. ALL also writes significant amounts of corporate pension scheme business, which supports strong development of its regular premium business. ALL reported gross written premiums (GWP) growth of 5.9% in 2013 (2012: 12.1%), while Fitch's estimate for the market's GWP growth is 3.8% (2012: 1.1%). Although ALL suffered a decrease of 3.8% in its new business, as measured by annual premium equivalent (APE), in 2013 annual premium income increased 7.9%. Fitch forecasts the German market's APE would have decreased by 6% and annual premiums to have been stable in 2013. ALL is expected to achieve above-market average regular premium growth again in 2014. ALG only distributes its products in Germany, which limits its geographical diversification. Fitch considers that a focus on the domestic market is typical for medium-sized companies such as ALG. Fitch views ALG's equity exposure as higher than the average of German primary insurers. As a proportion of total investments, ALG's exposure to equity investments exceeded the market average of 3% significantly. ALV's net combined ratio weakened to 99.8% in 2013 from 98.8% in 2012. Despite this, Fitch believes that ALV's long-term underwriting profitability improved in 2013. Germany suffered high natural catastrophe activity in 2013 and Fitch expects the market's net combined ratio to have increased by almost 3% to 99% (2012: 96.3%). ALV is expected to maintain its adequate underwriting profitability and to report a net combined ratio of 99% or less for 2014. RATING SENSITIVITIES An upgrade of the ratings in the near to medium-term is unlikely unless the group increases its size/scale and improves diversification, while maintaining strong capitalisation. Key rating triggers for a downgrade include a depleted capital position (as evidenced, for example, by the regulatory group solvency margin falling below 160% and expected to stay below that level) and the loss of the strong market position in the disability and corporate pension scheme business. ALG reported GWP of EUR2.3bn in 2013 (2012: EUR2.2bn) and had total assets of EUR21.6bn (2012: EUR20.5bn). Other than the insurance business, ALG provides building society business and investment fund business. ALG has a cooperation agreement with the mutual health insurer Hallesche Krankenversicherung auf Gegenseitigkeit. Contact: Primary Analyst Dr. Christoph Schmitt Director +49 69 768076 121 Fitch Deutschland GmbH Taunusanlage 17, 60325 Frankfurt Secondary Analyst Dr. Stephan Kalb Senior Director +49 69 768076 118 Committee Chairperson Clara Hughes Senior Director +44 20 3530 1249 Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria, 'Insurance Rating Methodology', dated 13 November 2013, are available at www.fitchratings.com. Applicable Criteria and Related Research: Insurance Rating Methodology here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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