Fitch Affirms Garant Versicherungs Aktiengesellschaft Vienna's IFS at 'A-'

Mon Aug 11, 2014 9:05am EDT

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(The following statement was released by the rating agency) PARIS, August 11 (Fitch) Fitch Ratings has affirmed Garant Versicherungs Aktiengesellschaft Vienna's (Garant) Insurer Financial Strength (IFS) Rating at 'A-'. The Outlook is Stable. KEY RATING DRIVERS The rating reflects Fitch's view of the strong probability of support, if needed, for Garant from its parent, the Belgian state-owned credit insurer, Delcredere Ducroire (formerly ONDD). Fitch considers Garant as strategically 'very important' to Delcredere Ducroire, under its insurance rating methodology. This, together with what Fitch views as strong creditworthiness of Delcredere Ducroire, has led to the rating being notched up by three levels from Garant's standalone credit strength. Garant is a small, niche player in the political risk insurance business and is 95.6%-owned by Delcredere Ducroire. On a standalone basis, Garant remains very strongly capitalised as reflected in a regulatory solvency ratio that at FYE13 was 4.5x the required minimum. The company's gross written premiums increased to EUR33.3m at FYE13 from EUR29.4m at FYE12, reflecting continued demand for political risk insurance. Nevertheless, its underwriting performance can be volatile and was weaker in FY13 with a combined ratio of 97.5%, up from 87.3% in FY12, according to Fitch calculations. Its expense ratio, however, fell sharply to 21% at FYE13 from 32.4% at FYE12. In addition, net profit materially decreased to EUR364,000 at FYE13 from EUR3.8m at FYE12; however, this does not affect the rating as capitalisation is strong. The company has a prudent investment strategy, but in FY13 the investment result was negatively affected by value adjustments and foreign exchange losses. Garant makes extensive use of reinsurance, which Fitch believes is adequate for the risks the company assumes. Nevertheless, there is concentration risk in the company's core business as Garant specialises in credit insurance and political risk insurance, focusing mostly on emerging markets. Fitch views the company's financial position as adequate but, because of the activities of its policyholders and their close linkage to the global economic environment, claims against it are likely to be somewhat volatile. The agency considers Garant's adequate reserving and its ability to recover a material portion of claims paid over time as offsetting factors. Fitch expects Garant to reinforce its disciplined and selective underwriting policy in the near future. Garant's reinsurance programme provides high coverage through quota-share, excess-of-loss reinsurance coverage as well as through a stop-loss cover. Fitch considers the company's reinsurance programme as a major factor supporting its rating and does not expect material changes to the current reinsurance programme. The Stable Outlook reflects Fitch's expectations that Garant will maintain its solid solvency level and reduce the volatility of its profitability through disciplined and selective underwriting. This is particularly important as demand for credit insurance is likely to remain strong in light of recent political disturbances in several regions and limited financing options. RATING SENSITIVITIES Although unlikely in the short- to medium-term, a change in Fitch's opinion on Garant's strategic importance to Delcredere Ducroire to 'core' from 'very important' could lead to an upgrade as Fitch views the parent's credit quality as higher than that of Garant on a standalone basis. Key rating triggers that could result in a downgrade include deterioration of Delcredere Ducroire's credit quality and/or an adverse change to Fitch's view of Garant's 'very important' strategic status, deterioration of Garant's standalone credit position through a lower solvency level to below 400% (FYE13: 451%) or a sustained deterioration in the combined ratio to materially above 100%. Contact: Primary Analyst Amelie Hibos Analyst +33 1 44 29 91 78 Fitch Ratings S.A.S. 60 rue de Monceau 75008 Paris Secondary Analyst Marc-Philippe Juilliard Senior Director +33 1 44 29 91 37 Committee Chairperson Federico Faccio Senior Director +44 20 3530 1394 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria "Insurance Rating Methodology", dated 13 November 2013, are available, at www.fitchratings.com. Applicable Criteria and Related Research: Insurance Rating Methodology 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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