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

Nuernberger Beteiligungs AG

11/06/2015 16:13

(The following statement was released by the rating agency)

FRANKFURT/LONDON, June 11 (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 (NB) Issuer Default Rating (IDR) at 'A-'. The 
Outlook on all ratings is Stable. NB's EUR100m subordinated debt has been 
affirmed at 'BBB-'. 

KEY RATING DRIVERS

Fitch views NLV (life), NAV (non-life) and NKV (health) as core to the 
Nuernberger group (NG), and their ratings are therefore based on a combined 
group assessment, under the agency's group rating methodology.

The affirmation of the group's 'A+' rating reflects NG's strong capitalisation, 
its leading position in the German unit-linked life and disability market. NG's 
strong position in the disability market allows the group to be resilient to a 
persistently low interest rate environment compared with many of its 
competitors. Offsetting these positive rating factors is the group's low 
geographical diversification, its above-market average exposure to equity 
investments and the current difficult operating environment for German life 
insurers.

Fitch regards NG's capitalization as strong. Based on the agency's Prism FBM 
capital model, NG's capital level is 'very strong'. The quality of available 
capital is high, as it consists mainly of shareholder funds and funds for future 
appropriation (FFA). 'Soft' capital such as the value of in-force business and 
goodwill make up only a small part of available capital. 

NG's financial leverage dropped to 6% in 2014 from 12% in 2013; Fitch expects 
further reduction of financial leverage in 2015 following the company's exercise 
of its call option on its hybrid debt. Fitch expects the group to maintain its 
strong capitalisation at end-2015.

Fitch considers NLV as better prepared than many of its competitors for 
servicing its guaranteed interest rate payments in a persistently low interest 
rate environment. This is due to the high proportion of unit-linked and 
disability business in its books, which contribute significantly to its 
actuarial gross earnings ('Rohueberschuss'). Moreover NLV has a high level of 
equity and funds for future appropriation. 

In 2014, NG reported a strong net income of EUR110m (2013: EUR73m), partly 
driven by some one-off positive effects. The non-life result has normalised 
after the 2013 result was negatively affected by higher-than-average catastrophe 
claims, and NAV reported a net combined ratio of 97.4% (2013: 98.2%). The life 
underwriting result, although still strong, was negatively affected by one-off 
strengthening in disability reserves. We believe NG is likely to benefit from a 
better underwriting result in 2015 but low investment yields will put pressure 
on its investment income.

NG'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 stood at 8.8%, significantly higher than 
the life market average of 3.7% at end-2014, meaning that the group is somewhat 
more exposed to market volatility than peers.

NG had total assets of EUR29.2bn at end-2014 (end-2013: EUR26.9bn). Gross 
written premiums at end-2014 were EUR2.6bn for the life segment, EUR0.7bn for 
the non-life segment and EUR0.2bn for the health segment.

   

RATING SENSITIVITIES

An upgrade of the ratings is unlikely in the short to medium term unless the 
group increases its size/scale and improves diversification, while maintaining 
"very strong" capitalisation based on Prism Factor-Based Model.

Weak overall profitability over a period of time, as indicated for example by a 
return on equity below 6%, and/or sustained material erosion in capital, for 
example, to a level of below "strong" in Fitch's Prism Factor-Based Model 
capital assessment could lead to a downgrade.

Fitch expects to upgrade NB's IDR by one notch to 'A' and the rating on NB's 
subordinated debt (the EUR100m subordinated note) by two notches to 'BBB+', if 
new notching criteria proposed by Fitch are made final. The proposed criteria 
are currently subject to a market consultation and review period (see "Fitch 
Publishes Exposure Draft of Updated Notching Criteria" dated 12 May 2015 at 
www.fitchratings.com). No other ratings are expected to be impacted by the 
proposed changes to Fitch's notching criteria.

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

Chris Waterman

Managing Director

+44 20 3530 1168

Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: 
elaine.bailey@fitchratings.com.

Additional information is available on www.fitchratings.com.

Applicable Criteria 

Exposure Draft: Insurance Notching Criteria (Proposed Methodology Changes) (pub. 
12 May 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=865576

Insurance Rating Methodology (pub. 04 Sep 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=756650

Additional Disclosures 

Solicitation Status 

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=986227

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