(Repeat for additional subscribers)
April 7 (The following statement was released by the rating agency)
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 affirmation reflects Fitch's view of the strong probability of support, if
needed, for Garant from its parent, the Belgian state-owned credit insurer,
Office National du Ducroire (ONDD). Fitch considers Garant as strategically
'very important' to ONDD under its insurance rating methodology. The agency
considers that ONDD's creditworthiness is strong, and based on ONDD's potential
support for Garant, has notched up by three levels the latter's rating from its
standalone credit strength. The company is a small, niche player in the
political risk insurance business and is 95.6%-owned by ONDD.
On a standalone basis, Garant remains very strongly capitalised as reflected in
a regulatory solvency ratio that at FYE13 was 4.5x the minimum required. 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 2013 with a
combined ratio of 97.5%, up from 87.3% at FYE12, according to Fitch's
calculations. Net profit materially decreased to EUR364,000 from EUR3.8m in
2012, mainly due a weaker underwriting performance, declining investment income
and higher capital losses.
The company has a prudent investment strategy, but in 2013 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, mostly focusing 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 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 and 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
current solid solvency level and reduce the volatility of its profitability
through disciplined underwriting and expense management. 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.
Although unlikely in the short- to medium-term, a change in Fitch's opinion on
Garant's strategic importance to ONDD to 'core' from 'very important' could lead
to an upgrade as Fitch views ONDD'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
ONDD'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% (451% at FYE13) or a
sustained deterioration in the combined ratio to materially above 100% (97.5% at