January 13, 2017 / 10:57 AM / a year ago

Fitch Affirms Nuernberger at IFS 'A+'; Outlook Stable

(The following statement was released by the rating agency) FRANKFURT/LONDON, January 13 (Fitch) Fitch Ratings has affirmed German insurers Nuernberger Lebensversicherung AG's (NLV), Nuernberger Allgemeine Versicherung AG's (NAV) and Nuernberger Krankenversicherung AG's (NKV) Insurer Financial Strength (IFS) Ratings at 'A+'. The agency has also affirmed their holding company Nuernberger Beteiligungs Aktiengesellschaft's Long-Term Issuer Default Rating (IDR) at 'A'. The Outlook on all ratings is Stable. KEY RATING DRIVERS Fitch views NLV (life), NAV (non-life) and NKV (health) as core to the Nuernberger group, and their ratings are therefore based on a combined group assessment, under the agency's group rating methodology. The IFS ratings of 'A+' reflect the group's strong capitalisation and well-diversified earnings. The group's leading market position in German unit-linked life and disability market significantly mitigates risk exposure to sustained low investment yields. Offsetting these positive rating factors are the asset-liability duration gap in the life segment, an above-market-average exposure to equity investments and a difficult operating environment for German life insurers. Fitch regards the group's capitalisation as strong and commensurate with the rating level. Based on the agency's Prism Factor-Based Model (FBM), the group's capital level was 'strong' at end-2015. In 2016 we expect capitalisation to have deteriorated due to increasing pressure on capital in the life segment but remained strong. The quality of available capital is high, as it consists mainly of shareholder funds and funds for future appropriation. The group has not yet published its Solvency II ratio, but we expect it to be comfortably over 100% without the use of transitional measures. Fitch believes NLV is better prepared than many of its competitors to service its guaranteed interest rate (GIR) payments in a persistently low interest rate environment. This is due to a high proportion of unit-linked and disability business in its books. Technical earnings from these lines mitigate shortfalls in investment earnings against GIR payments. As with many German life insurers, the average duration of assets is shorter than that of liabilities for the group's life segment. We view this as negative for the rating, since it increases exposure to interest rate changes. However, we believe the group's duration gap is slightly lower than the market average, as the portion of traditional annuity products with long duration in its portfolio is lower than the market average. The group's equity exposure is higher than the average for German primary insurers. As a proportion of total investments (excluding unit-linked investments), the group's exposure to equity investments was 9.4%, significantly higher than the market average of 4.5% at end-2015, meaning that the group is somewhat more exposed to equity market volatility than peers. We do not expect its asset allocation during 2016 to have changed significantly. In 1H16, consolidated net income decreased to EUR25m (1H15: EUR33m). We expect the group to report lower total net income in 2016 compared with 2015, mainly due to the lower investment income and increased costs relating to higher reserve requirements (Zinszusatzreserve). In the non-life segment, we expect the underwriting result to have slightly deteriorated but remained strong in 2016. The Nuernberger group had total assets of EUR28bn at end-1H16 (end-2015: EUR28bn). Gross written premiums in 2015 were EUR2.5bn for the life segment, EUR0.7bn for the non-life segment and EUR0.2bn for the health segment. We expect premiums in the life segment to have remained stable in 2016 and in non-life to have decreased slightly. RATING SENSITIVITIES An upgrade is unlikely in the short to medium term unless the group increases its size/scale and improves diversification, while improving capitalisation to "very strong" based on Fitch's Prism FBM. Weak overall profitability on a sustained basis, as indicated for example by a return on equity below 6% over a period of time or sustained material erosion in capital to below "strong" in Fitch's Prism FBM capital assessment could lead to a downgrade. Contact: Primary Analyst Mahsa Delgoshaei Associate Director + 49 69 7680 76 243 Fitch Deutschland GmbH Neuer Mainzer Strasse 46-50 D-60311 Frankfurt am Main Secondary Analyst Dr Stephan Kalb Senior Director +49 69 7680 76 118 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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