Fitch Affirms VOLKSWOHL BUND's IFS at 'AA-'; Outlook Stable

Mon Feb 17, 2014 11:50am EST

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(The following statement was released by the rating agency) LONDON/FRANKFURT, February 17 (Fitch) Fitch Ratings has affirmed Germany-based life insurer VOLKSWOHL BUND LEBENSVERSICHERUNG a.G.'s (VBL) Insurer Financial Strength (IFS) rating at 'AA-' with a Stable Outlook. KEY RATING DRIVERS The rating reflects VBL's strong capitalisation, its business position within the independent financial advisor (IFA) and sales organisation markets, strong gross written premium (GWP) growth, and sound expense ratios. Negative rating drivers are its low level of diversification in terms of geography and distribution channels. Fitch expects VBL's consolidated shareholders' funds to have increased to at least EUR130m at end-2013 from EUR122.9m at end-2012 and its funds for future appropriation, including terminal bonus funds, to at least EUR550m from EUR512.1m. Fitch expects available funds for life business to have increased more than 5%. However, VBL's actuarial reserves are likely to have increased even more. Measured as a proportion of actuarial reserves, VBL's available funds are therefore likely to have weakened slightly, decreasing to 8.1% at end-2013 (end-2012: 8.3%). Fitch estimates this ratio for the German life market as a whole to have decreased to 7.3% at end-2013 from 7.7% at end-2012. Despite this, VBL's capitalisation is likely to have remained strong at end-2013, on the basis of Fitch's risk-adjusted assessment. Fitch expects the same for the regulatory group solvency ratio, which it estimates to have been more than 200% at end-2013 (end-2012: 218%), and that VBL will maintain it at a minimum of 190% at end-2014. VBL continued its strong growth in 2013, with annual GWP increasing 3.9% (2012: 7.3%). However, its new business volume decreased 20% in 2013. Fitch estimates that the German life market's annual GWP increased 1% (2012: 1.0%). Fitch views VBL's lower new business volume to be rating-neutral because it supports VBL's ability to maintain its level of capitalisation. Fitch expects VBL to report a net investment return rate of more than 4.5% for 2013 (2012: 4.9%), and that it will be in line with, if not higher than, the German life market's average (2012: 4.6%). Fitch expects a fairly stable return rate for the market as insurers are likely to have continued realising capital gains from fixed-income investments to finance the cost of increasing an additional actuarial reserve (Zinszusatzreserve) in 2013. Fitch estimates the Zinszusatzreserve costs for the market as a whole to have been EUR6.5bn in 2013. VBL continues to generate strong operating cash flow, which reduces liquidity risk. Expense and mortality profits have been consistently strong. In 2012, VBL's administration expense ratio was 2.0% and the acquisition expense ratio was 4.9%, which were better than the market averages of 2.4% and 5.0%, respectively. Fitch expects VBL's expense ratios to continue to outperform the market average in 2014. VBL primarily serves sales organisations and IFAs. Geographical diversification is low as VBL operates only in Germany. RATING SENSITIVITIES Fitch views an upgrade as unlikely in the near-to medium-term, given VBL's high current ratings and its lack of diversification. Key rating drivers for a downgrade include a deterioration in capital position with a solvency margin below 170%, weakened market position or a significant decline in GWP. VBL is the holding company of the VOLKSWOHL BUND group (VBG). It has the legal form of a mutual and is VBG's most important operating entity, with total assets of EUR9.5bn, equating to 99% of the group's total at end-2012. The company focuses on life insurance for private customers and small- and medium-sized enterprises in Germany. VBG generated GWP of EUR1.4bn in 2013. Contact: Primary Analyst Dr Christoph Schmitt Director +49 69 768076 121 Fitch Deutschland GmbH Taunusanlage 17 D-60325 Frankfurt am Main Secondary Analyst Dr Stephan Kalb Senior Director +49 69 768076 118 Committee Chairperson David Prowse Senior Director +44 20 3530 1250 Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com. Additional information is available on www.fitchratings.com. Applicable criteria 'Insurance Rating Methodology', dated 13 November 2013, is available at www.fitchratings.com. Applicable Criteria and Related Research: Insurance Rating Methodology -- Amended here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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