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

Nuernberger Beteiligungs AG

18/06/2019 15:39

(The following statement was released by the rating agency)


Fitch Ratings-Frankfurt am Main-June 18: 

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+' 
(Strong). 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 (NG), and their ratings are therefore based on a combined 
group assessment, under the agency's group rating methodology.

The 'A+' IFS Ratings of NG reflect its very strong capitalisation, 
well-diversified earnings and leading market position in the German unit-linked 
life and disability market, which significantly mitigates its risk exposure to 
sustained low investment yields. Offsetting the positive rating factors are the 
duration gap between assets and liabilities in the life segment and an 
above-market-average exposure to equity investments.

Based on Fitch's Prism Factor-Based Model (FBM), the group's capital score was 
'Very Strong' at end-2018. This is consistent with the capital score at 
end-2017, and we expect this to be maintained in 2019. NG's Solvency II (SII) 
ratio dropped to 206% at end-2018 from 241% at end-2017, without transitional 
measures. The significant drop in the group's SII ratio during 2018 was due to 
the drop in the SII ratio of NLV, largely driven by decreasing unrealised gains 
on investments, an adjustment in modelling regarding future costs and lapse 
ratios in contracts, and a management rule being adapted to new corporate 
planning. We expect the SII ratio to improve in 2019.

Fitch views the overall market position of NG as strong for and supportive of 
its rating. In 2018, new business premiums of NLV's unit-linked and disability 
business grew, reversing after a few years of downtrend due to strong 
competition. NLV has maintained its good market position in these lines. Fitch 
believes the insurer 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 on its books. Technical earnings from these lines mitigate shortfalls 
in investment earnings and help to maintain NG's overall profitability.

As with many German life insurers, the average duration of assets is shorter 
than that of liabilities for NG's life segment. We view this as negative for the 
ratings, since it increases exposure to interest rate changes. We believe the 
group's duration gap is in line with the market average. We expect the duration 
gap to remain stable.

Despite a strong reduction in 2018, the group's equity exposure remained higher 
than the average for German life insurers and most peers'. As a proportion of 
total investments (excluding unit-linked investments), NLV's exposure to equity 
investments was 7.8% (2017: 10.6%), higher than the market average of 4.8% at 
end-2018 (end-2017: 5.3%), meaning that the group is more exposed to equity 
market volatility than peers. We do not expect its asset allocation to change 
significantly in the near future.

Fitch assesses NG's financial performance as strong. In 2018, NG's net income 
returned to a similar level to2016, at EUR61 million,after having increased 
strongly in 2017 to EUR100 million. Measured as a return on assets (ROA) prior 
to policyholder participation, group profitability in the life segment improved 
to 1.7% in 2018 (2017: 1.4%). Costs of additional reserving requirements 
(Zinszusatzreserve; ZZR), that were the main drag on NG life operations' income 
in previous years, dropped to EUR61 million in 2018 from EUR241 million in 2017, 
due to regulatory changes in the calculation of ZZR. For 2019, we expect the 
metric for NG to remain at the 2018 level. The net combined ratio in the 
non-life segment improved to 92.6% in 2018 from 98.7% in 2017, mainly driven by 
improved underwriting results in the liability and motor business. We expect the 
combined ratio to deteriorate slightly in 2019.

Rating Sensitivities

An upgrade is unlikely in the short- to medium-term given the group's moderate 
market position and its concentration in the German life market.

Sustained material erosion in capital, as reflected, for example, by a fall to 
the low end of the 'Strong' category in Fitch's Prism FBM capital assessment, 
could lead to a downgrade. Weak overall profitability, as indicated for example, 
by a return on equity of below 6% (2018: 7.5%) over a sustained period, could 
also lead to a downgrade.

NUERNBERGER Lebensversicherung AG; Insurer Financial Strength; Affirmed; A+; 
RO:Sta

NUERNBERGER Allgemeine Versicherungs-AG; Insurer Financial Strength; Affirmed; 
A+; RO:Sta

NUERNBERGER Krankenversicherung AG; Insurer Financial Strength; Affirmed; A+; 
RO:Sta

NUERNBERGER Beteiligungs-Aktiengesellschaft; Long Term Issuer Default Rating; 
Affirmed; A; RO:Sta

Contacts: 

Primary Rating Analyst

Mahsa Delgoshaei, 

Associate Director

+49 69 768076 243

Fitch Deutschland GmbH

Neue Mainzer Strasse 46 - 50 

Frankfurt am Main D-60311

Secondary Rating Analyst

Stephan Kalb, 

Senior Director

+49 69 768076 118

Committee Chairperson

Graham Coutts, 

Senior Director

+44 20 3530 1654

 

Media Relations: Athos Larkou, London, Tel: +44 20 3530 1549, Email: 
athos.larkou@thefitchgroup.com.

Additional information is available on www.fitchratings.com

Applicable Criteria 

Insurance Rating Criteria (pub. 11 Jan 2019)

https://www.fitchratings.com/site/re/10058790

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https://www.fitchratings.com/site/pr/10078969#solicitation

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