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Fitch Affirms Provinzial NordWest's Insurance Entities' IFS at 'AA-' Outlook Stable
December 7, 2016 / 10:50 AM / a year ago

Fitch Affirms Provinzial NordWest's Insurance Entities' IFS at 'AA-' Outlook Stable

(The following statement was released by the rating agency) FRANKFURT/LONDON, December 07 (Fitch) Fitch Ratings has affirmed non-life insurer Westfaelische Provinzial Versicherung AG's (WPV) and life insurer Provinzial NordWest Lebensversicherung AG's (PNWL) Insurer Financial Strength (IFS) Ratings at 'AA-'. The Outlooks are Stable. KEY RATING DRIVERS The ratings reflect Fitch's view of WPV and PNWL as core entities of the German Provinzial NordWest (PNW) insurance group, which we consider an integral part of the German savings bank group Sparkassen-Finanzgruppe (Sparkassen) (SFG: Issuer Default Rating (IDR) A+/Stable). WPV's and PNWL's ratings benefit from the entities' ultimate ownership by SFG. We align their implied IDRs with SFG's IDR. PNW is fully owned by SFG and public-sector institutions. PNW's insurance activities form a core part of SFG's product offering to its customers in a specific large geographical area. For example, two-thirds of PNWL's life business is sold by SFG. In addition, PNW's brand and agency network is closely linked to SFG banks. Fitch thus views PNW as the insurance arm of SFG in its region of operations and sees a high probability that SFG would provide support for the subsidiary in case of need. On a standalone basis, PNW is strongly capitalised, has prudent reserving methods and has reported consistently strong underwriting performance over at least the past five years. Less positively, the significant share of home insurance in PNW's non-life business exposes the group to windstorm damage, although this is mitigated by adequate reinsurance. Its regional focus on north-west Germany limits its geographical diversification and growth potential. We expect consolidated net income to increase to more than EUR150m in 2016 (2015: EUR83m) as the release of a claims equalisation reserve will strongly add to 2016's net income and as the drag on earnings in 2015 from the introduction of deferred funds for future appropriation dropped off. Even after adjusting 2016's net income for positive one-off effects, we expect stable to slightly declining net income from 2017 onwards, as expenses are likely to be incurred to offset pension deficits. For 2016, Fitch expects slightly decreasing investment return, driven by persistently low yields and low reinvestment rates. In 2015, PNW's investment return was 4.6%. In 9M16, the unit-linked and disability business and its products with alternative guarantee models contributed more than 50% to PNWL's new business (2015: 46%). The company has reduced its single premium business, and we therefore expect gross written premiums (GWP) to decrease by more than 10% in 2016. For WPV we expect GWP to increase by more than 3%. PNW had total assets of EUR24.9bn at end-2015 and reported GWP of EUR4.1bn. The group includes one life and three non-life insurers, of which WPV and PNWL form the main pillars. RATING SENSITIVITIES As Fitch regards PNWL and WPV as an integral part of SFG, changes in SFG's IDR are likely to be reflected in the insurers' ratings. In addition, a downgrade of PNWL's and WPV's ratings could be triggered by an adverse change in Fitch's view of the strategic importance of public sector insurers within SFG or of PNWL and WPV within PNW. We consider such a change as unlikely in the near- to medium- term but it could result, for example, from a severely depleted capital position at PNWL and WPV. 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 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 Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1016004 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. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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