October 20, 2017 / 8:52 AM / a year ago

Fitch Affirms Gothaer at IFS 'A'; Outlook Stable

(The following statement was released by the rating agency) FRANKFURT/LONDON, October 20 (Fitch) Fitch Ratings has affirmed Gothaer Allgemeine Versicherung AG's (GA) and Gothaer Lebensversicherung AG's (GL) Insurer Financial Strength (IFS) Ratings at 'A' (Strong) and Long-Term Issuer Default Ratings (IDR) at 'A-'. The Outlooks are Stable. KEY RATING DRIVERS The affirmation reflects the Gothaer group's (Gothaer) strong and resilient capitalisation, healthy financial performance and well-diversified business mix. The ratings are constrained by the adverse impact of low interest rates on Gothaer's investment income and long-term life liabilities. Fitch views Gothaer's capitalisation strong and supportive of the company's ratings. This view is supported by Gothaer's Fitch Prism Factor-Based Model score of 'Strong' at end-2016, unchanged from end-2015. Gothaer also reported a strong Solvency II ratio of 220% at end-2016, including transitional measures. Without transitional measures the ratio was 140%. Both Solvency II ratios were lower than levels at end-2015. Gothaer reported net income of EUR164 million in 2016, up from EUR141 million in 2015. The return on equity improved to 8.3% from 7.6%, mainly driven by increased realised gains in the life segment. The non-life underwriting result remained resilient, with a combined ratio of 95.6% in 2016 (2015: 96.2%). For 2017, we expect a slightly higher combined ratio, driven by larger natural catastrophe losses. Life underwriting results remained affected by the negative effects of low interest rates, partly offset by increased realised gains and improved underwriting expenses. The increasing cost charges stemming from the need to fund additional regulatory reserving requirements (Zinszusatzreserve, ZZR) reached EUR298 million in 2016, (2015: EUR204 million), which was mainly financed through realised capital gains. Gothaer's life insurance investments have a shorter duration than the group's life insurance liabilities. This gap is in line with the average duration gap of German life insurers. Fitch views this risk as negative for the ratings since it contributes to interest rate risk. We expect no major change to this gap in 2017. In recent years, GL has shifted its product mix away from traditional life products with guaranteed interest rates to new products that are less sensitive to interest rates, which we view as positive. Fitch views Gothaer's asset allocation as prudent and well-diversified. Gothaer has low exposure to equity investments (2016: 1% of total investments), but an above-market average exposure to investments in real estate (8%) and alternative investments such as renewable energy (3%). Gothaer is a mutual insurance group, which generated gross written premiums (GWP) of EUR4.4 billion in 2016 (2015: EUR4.5 billion), making it one of the larger German mid-sized insurance groups with a strong and stable market position. Gothaer focuses on private customers and small and medium-sized enterprises. Products are distributed via tied agents and independent financial advisors and, to a limited degree, banks. RATING SENSITIVITIES An improvement in Gothaer's capitalisation, as indicated by the company's Prism score increasing to "Very Strong" on a sustained basis, while maintaining a group return on equity above 7.5%, could lead to an upgrade. Key rating triggers for a downgrade include weakening capitalisation, as measured by a decline in the Fitch Prism Factor-Based Model score to the low end of the "Strong" category, and a net combined ratio of above 105%. Contact: Primary Analyst Dr Stephan Kalb Senior Director +49 69 7680 76 118 Fitch Deutschland GmbH Neue Mainzer Strasse 46-50, D-60311 Frankfurt am Main Secondary Analyst Dr Christoph Schmitt Director +49 69 7680 76 121 Committee Chairperson Willem Loots Senior Director +44 20 3530 1808 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Insurance Rating Methodology (pub. 26 Apr 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy 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 WEB SITE AT WWW.FITCHRATINGS.COM. 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