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Fitch Affirms Munich Re's IFS Rating at 'AA'; Outlook Stable
December 8, 2016 / 12:34 PM / a year ago

Fitch Affirms Munich Re's IFS Rating at 'AA'; Outlook Stable

(The following statement was released by the rating agency) LONDON, December 08 (Fitch) Fitch Ratings has affirmed Munich Reinsurance Company's (Munich Re) Insurer Financial Strength (IFS) rating at 'AA' and Long-Term Issuer Default Rating (IDR) at 'AA-'. Fitch has also affirmed the ratings of Munich Re's core operating subsidiaries. The Outlooks are Stable. A full list of rating actions is at the end of this commentary. KEY RATING DRIVERS The affirmation reflects the strength of Munich Re's franchise and financial profile within the global reinsurance sector, a view that is supported by strong and consistent property and casualty (P&C) reinsurance results and very strong capitalisation. Fitch regards Munich Re's reinsurance operation as one of a very select group that has the scale, diversity and financial strength to attract the highest quality business being placed into the global reinsurance market. A marginal offsetting factor is the mixed performance of the reinsurer's ERGO-branded primary insurance operations. Fitch expects P&C reinsurance earnings metrics will remain commensurate with a 'AA' rating in the next 12 to 18 months. The P&C reinsurance division reported a combined ratio of 93.7% for 9M16 (2015: 89.7%), helped by lower-than-expected natural catastrophe claims and strong reserve releases. The normalised combined ratio, adjusting back for variations in reserving and major losses versus budget, deteriorated to 99.9% for 9M16, reflecting the effects of a protracted soft market. This is likely to increase the sensitivity of future underwriting profitability, to even a modest rise in major loss claims. We expect that the P&C reinsurance segment will continue to account for a major part of the company's operating earnings in the foreseeable future. Fitch regards Munich Re's capitalisation as very strong, and financial leverage as moderate. The company's reported Solvency II ratio was very strong at around 250% at end-3Q16, well above the 220% top end of the reinsurer's target range. Munich Re's very strong capitalisation enables it to provide underwriting capacity on a continuous and large scale basis. In May 2016, Munich Re's primary insurance group ERGO Group AG announced a restructuring programme whereby Munich Re will invest about EUR1bn (net) in improving ERGO's competitiveness and profitability. The costs associated with the ERGO strategy led Munich Re to lower its profit guidance to EUR2.3bn for 2016, from EUR2.3bn-EUR2.8bn previously. However after a strong result in 3Q, Munich Re now expects annual profit to significantly exceed the EUR2.3bn guidance. Fitch recognises that the current operating environment remains challenging for Munich Re and the wider (re)insurance industry. Persistently low interest rates and increasingly intense competition, especially in non-life reinsurance, continue to drive price softening across certain major reinsurance classes. The agency expects Munich Re's diversified business profile and prudent underwriting policy to help the reinsurer to weather a protracted period of price softening. RATING SENSITIVITIES Munich Re has the joint-highest IFS rating among European (re)insurance groups and an upgrade is unlikely in the near term. The key rating triggers that could result in a downgrade include a sustained material drop in the company's risk-adjusted capital position to below 'very strong', as measured by Prism FBM, a through-cycle Fitch-calculated combined ratio of 97% or above, or significant underperformance relative to peers. FULL LIST OF RATING ACTIONS Munich Reinsurance Company: IFS Rating: affirmed at 'AA'; Outlook Stable Long-Term IDR: affirmed at 'AA-'; Outlook Stable Subordinated debt: affirmed at 'A' GBP300m subordinated debt (XS0167260529): affirmed at 'A+' DKV Deutsche Krankenversicherung IFS Rating: affirmed at 'AA'; Outlook Stable ERGO Group AG Long-Term IDR: affirmed at 'AA-'; Outlook Stable Europaeische Reiseversicherung AG IFS Rating: affirmed at 'AA'; Outlook Stable Munich Reinsurance America Corporation Long-Term IDR: affirmed at 'AA-'; Outlook Stable Senior unsecured debt: affirmed at 'AA-' VORSORGE Lebensversicherung AG IFS Rating: affirmed at 'AA'; Outlook Stable The following Munich Re entities' IFS ratings have been affirmed at 'AA' with Stable Outlook: Munich Reinsurance America, Inc. Hartford Steam Boiler Inspection and Insurance Company The following Munich Re entities' IFS ratings have been affirmed at 'A+' with Stable Outlook: ERV Foersaekringsaktiebolag (publ) Europaeiske Rejseforsikring A/S Contact: Primary Analyst Graham Coutts Director +44 20 3530 1211 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Harish Gohil Managing Director +44 20 3530 1257 Committee Chairperson Chris Waterman Managing Director +44 20 3530 1168 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: Additional information is available on Applicable Criteria Insurance Rating Methodology (pub. 15 Sep 2016) 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. 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. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. 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