TEXT-Fitch affirms Provinzial NordWest's IFS at 'AA-'
Jan 23 - Fitch Ratings has affirmed non-life insurer Westfaelische Provinzial Versicherung AG's (WPV) and life insurer Provinzial NordWest Lebensversicherung AG's (PNWL) Insurer Financial Strength (IFS) ratings at 'AA-' with a Stable Outlook. The ratings reflect Fitch's view of WPV and PNWL as core entities of the German Provinzial NordWest (PNW) insurance group which, in turn, it considers an integral part of the German savings bank group Sparkassen-Finanzgruppe (Sparkassen) (SFG; 'A+'/Stable). The ratings of WPV and PNWL benefit from their ownership by SFG. In Q412, a minority of PNW's shareholders expressed an interest in a disposal of their PNW stake through a possible sale to Allianz. However, the majority did not agree, and expressed a desire to retain their shareholding in the group. A possible merger of PNW with the insurance group Provinzial Rheinland (PRL, also considered an integral part of SFG) is currently being considered. Consultations are expected to last for several months. PNW is already the second-largest public sector insurance group and a merger of PNW and PRL could strengthen this position. A merger within the SFG insurance network or ownership changes within the SFG would not affect PNW's ratings. Fitch believes that any change to PNW's ownership structure would remain within SFG and its broader network. Recently, SFG held a conference in Berlin to improve and seek greater benefits across its insurance network. Furthermore, the vast majority of savings banks in the SFG are opposed to a private stakeholder within the SFG insurance network. The PNW group is strongly capitalised and has prudent reserving methods. In addition, WPV reported strong underwriting performance in recent years. Less positively, PNW's significant concentration in home insurance within its non-life segment means the group has significant exposure to windstorm damage, although this is partly mitigated by adequate reinsurance protection. PNW's regional focus in north-west Germany limits its geographical diversification and growth potential. PNW's strong market position in its home market is supported by its large agency network and distribution of its products through SFG banks. PNWL's ability to attract single premium business also benefits from the company's membership of SFG, but results in more volatile GWP growth for PNWL. Fitch expects the group's life GWP to have declined in 2012. In 2011, PNW achieved a net investment return rate (NIRR) of 4.1% and Fitch expects the NIRR to have been stable or improved slightly in 2012. PNW reported net income of EUR116.2m in 2011 and Fitch expects PNW to report net income of more than EUR100m for 2012. RATING SENSITIVITIES A key rating trigger for an upgrade or downgrade is PNW's strategic importance within SFG. Any change in SFG's rating is likely to be reflected in PNWL's and WPV's ratings. PNW had total assets of EUR21.9bn at end-2011 and reported GWP of EUR3.0bn. Fitch expects a small decrease in PNW's premium income for 2012. PNW consists of several operating insurers, of which WPV with total assets of EUR2.0bn and PNWL with total assets of EUR17.8bn are the largest. Additional information is available on www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable criteria 'Insurance Rating Methodology', dated 11 January 2013, is available at www.fitchratings.com. Applicable Criteria and Related Research: Insurance Rating Methodology - Amended
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