TEXT - Fitch affirms SIGNAL IDUNA Rueckversicherungs AG

Wed Feb 20, 2013 11:04am EST

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(The following statement was released by the rating agency)

Feb 20 - Fitch Ratings has affirmed Swiss reinsurer SIGNAL IDUNA Rueckversicherungs AG's (SIRe) Insurer Financial Strength (IFS) rating at 'A-'. The Outlook is Stable. KEY RATING DRIVERS The rating reflects the benefits of SIRe's ownership by the German IDUNA Vereinigte Lebensversicherung aG fuer Handwerk, Handel und Gewerbe (IDUNA). SIRe is viewed by Fitch as "very important" to the IDUNA group under the agency's group rating methodology. The company's rating also reflects its strong capitalisation, prudent reserving and sound underwriting practices. Offsetting rating factors include SIRe's small size and heightened operational risks, mainly emanating from its dependence on a small number of key staff. However, some key staff members who left in recent years have been replaced successfully. Fitch typically equalises Issuer Default Ratings (IDR) and IFS ratings for reinsurance entities in Europe to reflect the absence of priority for reinsurance policyholders in a default situation. However, in the case of SIRe, Fitch has deviated from this approach in favour of the application of standard notching for primary insurers where IFS ratings are typically notched above the IDR to reflect policyholder priority in a default. Fitch has assumed higher policyholder recoveries in this case, based on the significant internal group business written by SIRe, the small size of the reinsurer relative to the group and the expectation that parental support would be forthcoming if needed. SIRe's strong capitalisation is reflected in its regulatory solvency margin at 257% at end-2011 under the Swiss Solvency Test 2012. Fitch views this level of capitalisation as appropriate, and risk management as strong for a company of SIRe's small size. Fitch believes that the IDUNA group is following a long-term strategy to develop SIRe into an integral and significant part of the overall group. Group benefits include the allocation of a high core capitalisation of CHF132m. SIRe also benefits from organisational and IT support from the parent company, and from the group's relationship with European mutuals, which form the main part of SIRe's customer base. Fitch believes that the IDUNA group will have achieved financial results in 2012 in line with the agency's prior expectations. Fitch expects that the group's underwriting profitability in non-life will have slightly weakened in 2012 while investment income improved. The agency views IDUNA's resilience to the current low investment yield environment as superior to that of the German market as a whole. However, technical profitability continues to be constrained by the low interest rate environment. RATING SENSITIVITIES Rating triggers for a downgrade include a reduction in SIRe's strategic importance to the IDUNA group and deterioration in IDUNA group's credit quality, in particular through a significant decrease in capitalisation. Any significant weakening of SIRe's credit profile could also lead to a downgrade, although Fitch views this as unlikely. An upgrade is unlikely in the near to mid-term. However, rating triggers for an upgrade include a substantial and sustained increase in IDUNA group's capitalisation and improvement in the group's non-life combined ratio to a level consistently below 100% as well as an improvement in the operational performance of IDUNA's life insurance business. IDUNA is a member of the German SIGNAL IDUNA group, which is headed by four mutual insurance companies. In 2012, the SIGNAL IDUNA group had total gross written premiums of EUR5.5bn and employed about 13,200 staff. (Caryn Trokie, New York Ratings Unit)

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