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

Nuernberger Beteiligungs AG

28/04/2020 16:42

(The following statement was released by the rating agency)


Fitch Ratings-Frankfurt am Main-April 28: 

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 Outlook on all ratings is Stable.

A full list of rating actions is detailed below.

Key Rating Drivers

The rating actions are based on Fitch's current assessment of the impact of the 
coronavirus pandemic, including its economic impact, under a set of rating 
assumptions described below. These assumptions were used by Fitch to develop 
pro-forma financial metrics for the Nuernberger group (Nuernberger) that are 
compared to both ratings guidelines defined in its criteria, and relative to 
previously established rating sensitivities for Nuernberger.

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

Under our pro-forma analysis, we continue to view Nuernberger's capitalisation 
as very strong, with financial capital ratios only marginally weaker than those 
in 2019 preliminary results. Capitalisation in Fitch's Prism Factor-Based Model 
(FBM) remains "Very Strong" on a pro-forma basis, unchanged from the score based 
on actual end-2019 financials. Financial ratios for investment risk and 
liquidity also remain largely stable. Compared with other German insurers, 
Nuernberger had high exposure to equity investments at about 8.2% of total 
investments at book value at end-2019, but reduced its exposure to equities in 
1Q20.

We do not expect losses driven by the pandemic to be of a magnitude to cause 
significant capital depletion, and our current expectation is that Nuernberger's 
underlying run-rate profitability will remain resilient in 2020.

Key Assumptions

Assumptions for Coronavirus Impact (Rating Case):

Fitch used the following key assumptions, which are designed to identify areas 
of vulnerability, in support of the pro-forma ratings analysis discussed above:

--Decline in key stock market indices by 35% relative to 1 January 2020. 

--Increase in two-year cumulative high-yield bond default rate to 13%, applied 
to current non-investment-grade assets, as well as 12% of 'BBB' assets. 

--Both upward and downward pressure on interest rates, with spreads widening 
(including high-yield by 400bp) coupled with notable declines in government 
rates. 

--A coronavirus infection rate of 5% and a mortality rate (as a percent of 
infected) of 1%.

-- For the non-life and reinsurance sectors, a negative impact on the 
industry-level accident year loss ratio from COVID-19-related claims at 3.5pp, 
partially offset by a favourable impact from the motor insurance line averaging 
1.5pp.

RATING SENSITIVITIES

The ratings remain sensitive to a material change in Fitch's rating-case 
assumptions with respect to the coronavirus pandemic. Periodic updates to our 
assumptions are possible given the rapid pace of changes in government actions 
in response to the pandemic, and the pace with which new information is made 
available on the medical aspects of the outbreak. An indication of how ratings 
would be expected to be impacted under a set of stress-case assumptions is 
included at the end of this section to help frame sensitivities to a severe 
downside scenario. 

Factors that could, individually or collectively, lead to negative rating 
action/downgrade:

- A material adverse change in Fitch's rating assumptions with respect to the 
coronavirus impact.

- Sustained material erosion in capital, as reflected, for example, by Fitch's 
Prism FBM falling to the low end of the 'Strong' category.

- Weak overall profitability, as indicated for example, by a return on equity of 
below 6% over a sustained period (2019: 8.1%)

Factors that could, individually or collectively, lead to positive rating 
action/upgrade:

- A positive rating action is prefaced by Fitch's ability to reliably forecast 
the impact of the coronavirus pandemic on the financial profiles of both the 
German life insurance sector and Nuernberger.

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

Stress Case Sensitivity Analysis

Fitch's stress case assumes a 60% stock market decline, two-year cumulative 
high-yield bond default rate of 22%, high-yield bond spreads widening by 600bp, 
more prolonged declines in government rates, heightened pressure on 
capital-market access, a coronavirus infection rate of 15% and mortality rate of 
0.75%, and an adverse non-life industry-level loss ratio impact of 7pp for 
COVID-19 claims that is partially offset by a favourable 2pp impact for motor 
insurance.

The implied-rating impact under the stress case would be a downgrade of no more 
than one notch.

Best/Worst Case Rating Scenario

International scale credit ratings of Financial Institutions issuers have a 
best-case rating upgrade scenario (defined as the 99th percentile of rating 
transitions, measured in a positive direction) of three notches over a 
three-year rating horizon; and a worst-case rating downgrade scenario (defined 
as the 99th percentile of rating transitions, measured in a negative direction) 
of four notches over three years. The complete span of best- and worst-case 
scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. 
Best- and worst-case scenario credit ratings are based on historical 
performance. For more information about the methodology used to determine 
sector-specific best- and worst-case scenario credit ratings, visit 
https://www.fitchratings.com/site/re/10111579.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the 
Applicable Criteria.

ESG Considerations

The highest level of ESG credit relevance, if present, is a score of 3. This 
means ESG issues are credit-neutral or have only a minimal credit impact on the 
entity(ies), either due to their nature or to the way in which they are being 
managed by the entity(ies). For more information on Fitch's ESG Relevance 
Scores, visit www.fitchratings.com/esg.

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

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

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

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

Contacts: 

Primary Rating Analyst

Edlira Kospiri, CFA, Actuaire IA

Associate Director

+49 69 768076 166

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

Harish Gohil, FIA

Managing Director

+44 20 3530 1257

 

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. 02 Mar 2020) (including rating assumption 
sensitivity)

https://www.fitchratings.com/site/re/10112692

Applicable Model 

Numbers in parentheses accompanying applicable model(s) contain hyperlinks to 
criteria providing description of model(s).

Prism Factor-Based Capital Model, v1.7.1

1-https://www.fitchratings.com/site/re/969155

Additional Disclosures 

Dodd-Frank Rating Information Disclosure Form 

https://www.fitchratings.com/site/dodd-frank-disclosure/10119696

Solicitation Status 

https://www.fitchratings.com/site/pr/10119696#solicitation

Endorsement Status

https://www.fitchratings.com/site/pr/10119696#endorsement_status

Endorsement Policy 

https://www.fitchratings.com/regulatory

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