(Repeat for additional subscribers)
April 7 (The following statement was released by the rating agency)
Fitch Ratings has affirmed Gothaer Allgemeine Versicherung AG's (GA) and Gothaer Lebensversicherung AG's (GL) Insurer Financial Strength (IFS) ratings at 'A' and Long-term Issuer Default Ratings (IDR) at 'A-'. The Outlook on the ratings is Stable. Fitch has also affirmed GA's EUR250m subordinated debt at 'BBB'.
KEY RATING DRIVERS
The affirmation reflects Gothaer group's (GG) strong and resilient capitalisation, well-diversified group structure and Fitch's expectations that GG's 2013 investment income and net profit will be maintained close to the improved 2012 level.
At-end 2012, GG reported a regulatory solvency margin of 187% (2011: 155%) and the agency expects the improved capitalisation to be maintained or only slightly decrease in 2013. Fitch considers GG's capital as supportive of its ratings based on Fitch's internal risk-adjusted capital assessment.
Fitch considers GL and GA as core to, and fully integrated with GG, as they have the same brand, management and distribution channels, as well as similar clients and back-office operations and shared services with other group companies. The ratings reflect GG's strong business position and well-developed risk management, which are partly offset by competitive German market conditions and GG's investment portfolio, which tends to show more volatility. However, investment returns and unrealised capital gains were strong during 2012. In line with an increased market interest rate, Fitch expects unrealised capital gains for GG to have declined during 2013.
GG's asset duration is shorter than the market average, which would be a benefit if interest rates increased further. However, in a persisting low interest rate environment it would put pressure on GG's total return. GG reported GIIPS sovereign exposure of EUR1.8bn and subordinated debt exposure of EUR1.2bn at end-2012, which amounted to 6.8% and 4.8%, respectively, of total investments (market values). GG's GIIPS sovereign exposure was higher than the German market average. Fitch expects that GG further reduced its subordinated debt exposure in 2013.
Fitch expects an increase in GG's net combined ratio for 2013 to above 100% due to catastrophe-related claims activity throughout the year. This would be roughly in line with the market, for which Fitch estimates a combined ratio of 99% (2012: 96.3%). For 2012 GA reported a net combined ratio of 97.5%.
Key rating triggers for an upgrade include an improved level of profitability in the life and investment operations with group return on equity maintained above 7.5% on a sustained basis. GG would also need to maintain a regulatory solvency margin of at least 165%, and further de-risk its investment exposure to peripheral European sovereigns and subordinated debt.
Key rating triggers for a downgrade include a decline in capitalisation (the regulatory solvency margin falling below 130%), a weakening of GG's market position and a net combined ratio of above 105%.
GG is a mutual insurance group, which generated gross written premiums (GWP) of EUR4.2bn in 2012, making it one of the larger German mid-sized insurance groups. GG focuses on private customers and small- and medium-sized enterprises. Products are distributed via tied agents and independent financial advisors and, to a limited degree, through co-operating banks. With GWP of EUR1.5bn, GA is GG's main non-life insurer. The life segment consists mainly of GL (GWP: EUR1.1bn). The health insurer, Gothaer Krankenversicherung AG, constitutes the third group segment with GWP of EUR0.9bn.