Fitch Affirms SIRe's IFS at 'A-'; Outlook Stable

Wed Aug 20, 2014 8:58am EDT

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(The following statement was released by the rating agency) FRANKFURT/LONDON, August 20 (Fitch) 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 IDUNA Vereinigte Lebensversicherung aG fuer Handwerk, Handel und Gewerbe (IDUNA) group. SIRe is viewed by Fitch as "very important" to the IDUNA group under the agency's group rating methodology and SIRe's rating benefits from a two-notch uplift from its standalone assessment. The company's rating also reflects its strong capitalisation and sound underwriting practices in recent years. Offsetting rating factors include SIRe's small size and heightened operational risks, mainly emanating from its dependence on a small number of key staff. SIRe's strong capitalisation is reflected in its regulatory solvency margin of 298% at end-2013 under the Swiss Solvency Test 2014. Fitch views this level of capitalisation as commensurate with the rating. Fitch regards SIRe's risk management, supported by its IDUNA group membership, as strong for a company of its size. SIRe's gross written premiums (GWP) increased 3.8% to CHF159m in 2013. The company had a five-year compound annual GWP growth rate of 4% while maintaining the combined ratio below 100% since 2009, which reflects SIRe's sound underwriting practices. Fitch expects SIRe's premium income to be stable in 2014 as reinsurance rates have come under pressure. 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. This view is supported by the group's plan to expand SIRe's target markets once it has built up a sustainable base for its business and by IDUNA's capital injection of CHF25m in 2013. Group benefits include the allocation of high core capitalisation to SIRe of CHF150m. SIRe also benefits from organisational and IT support from the parent company, and from the group's relationship with European mutuals, which form the mainstay of SIRe's customer base. For life insurance, Fitch views IDUNA's resilience to persistent low yields as strong compared with that of the German life market as a whole. However, technical profitability continues to be constrained by the low interest rate environment. In non-life insurance, Fitch views IDUNA's consolidated underwriting profitability as moderate. The IDUNA group achieved strong bottom-line profitability in 2013 with a strong return on equity of 9.3% (2012: 11.7%). Fitch expects the group to maintain its strong financial profile in 2014 with a return on equity of more than 7%. RATING SENSITIVITIES Rating triggers for a downgrade include what Fitch would view as a diminishing of 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 - as, for example, reflected in a Swiss Solvency Test result below 200% - could also lead to a downgrade, although Fitch views this as unlikely. Rating triggers for an upgrade include a substantial and sustainable increase in IDUNA group's capitalisation and improvement in the group's non-life combined ratio to consistently below 100% together with an improvement in the operational performance of IDUNA's life insurance business. However, Fitch views an upgrade as unlikely in the near- to medium-term. IDUNA is a member of the German SIGNAL IDUNA group, which is headed by four mutual insurance companies. In 2013, the SIGNAL IDUNA group had total GWP of EUR5.6bn, total assets of EUR48.6bn and employed 12,900 staff. Contact: Primary Analyst Dr. Christoph Schmitt Director +49 69 7680 76 121 Fitch Deutschland GmbH Taunusanlage 17 60325 Frankfurt Secondary Analyst Dr. Stephan Kalb Senior Director +49 69 7680 76 118 Committee Chairperson David Prowse Senior Director +44 20 3530 1250 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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