TEXT - Fitch raises Stuttgarter Lebensversicherung ratings

(The following statement was released by the rating agency)

Oct 19 - Fitch Ratings has revised the Outlook on German life insurer Stuttgarter Lebensversicherung a.G.'s (SLV) Insurer Financial Strength (IFS) rating to Positive from Stable and affirmed it at 'A'. The Positive Outlook reflects SLV's improved market position as evidenced by improvements in new business volume (NBV) and strong growth in gross written premiums (GWP) in 2011 and 2012 to date. In 2011, SLV's NBV increased by 42.6% (market: 6.4%), which resulted in GWP growth of 4.8%. This is against the market trend, which reported a GWP decline of 4.6%. Fitch notes positively that SLV achieved positive growth of regular GWP of 2.7% (market: 1.0%) in 2011 after several years decline. SLV continued this strong performance in the period to end-August 2012, with NBV increasing 55% yoy and GWP growth of 12.2% yoy. Fitch expects the market's GWP to have declined by around 5% in the same time. The affirmation reflects SLV's very strong capital position, the company's conservative investment mix and earnings diversification through its affiliates. These positive rating factors are partly offset by the company's concentrated distribution channels, its low geographical diversification - SLV only operates in Germany - and its relatively modest size. Furthermore, SLV's acquisition expense and lapse ratios of 5.6% and 5.9%, respectively, are worse than the market average of 5.0% for both metrics. However, more positively, SLV was able to improve both metrics in recent years, closing the gap with the market average. Based on the agency's internal risk-based capital assessment, Fitch views SLV's capitalisation as very strong. This view is also supported by SLV's regulatory solvency margin of 255% at end-2011. In addition, SLV holds strong off-balance-sheet reserves (net unrealised gains), which totalled EUR373.6m (2010: EUR344.1m) and represented 8.1% (2010: 7.5%) of the company's total investments at end-2011. This compares favourably with the German market as a whole, which reported an average off-balance sheet reserve ratio of 5.9% in 2011. SLV achieved a net investment return rate of 4.5% in 2011 (2010: 4.5%), while the German market average declined to 4.1% (2010: 4.3%) in 2011. SLV invested 7.9% of its total investments in equities at end-2011, which exceeded the market average of 2.9%. Given SLV's strong capitalisation and stable investment strategy, the agency expects that SLV's equity investments will continue to remain above market average at end-2012, thus making the company more exposed to equity market shocks than many of its peers. Key rating triggers that could result in an upgrade include further confirmation over the next year of SLV's recently improved market position, as measured by growth in GWP at a level at least in line with the market average and ability to defend its new business market share, while at the same time maintaining its very strong capitalisation. Key ratings triggers for a downgrade include a significant weakening of the market position, as measured by changes in GWP and new business market share over a period of time. However, Fitch considers a downgrade as relatively unlikely while the company continues to maintain very strong capitalisation. SLV is the holding company, and main operating entity, of the Stuttgarter mutual insurance group. The consolidated group had total assets of around EUR5.9bn at end-2011, generated EUR536m GWP in life insurance and EUR92m GWP in non-life insurance. (Caryn Trokie, New York Ratings Unit)