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Feb 21 (The following statement was released by the rating agency)
Fitch Ratings has affirmed German life insurer Stuttgarter Lebensversicherung a.G.'s (SLV) Insurer Financial Strength (IFS) rating at 'A+' with a Stable Outlook.
KEY RATING DRIVERS
The affirmation reflects SLV's strong capital position (with regulatory solvency margin cover of at least 235% at end-2013), the company's conservative investment mix and earnings diversification through its affiliates. These positive rating factors are partly offset by the company's concentrated distribution channels, its low geographical diversification - SLV operates only in Germany - and its relatively small size.
Fitch expects that SLV's new business volume (NBV) remained on a strong level in 2013 and even increased by about 3%. SLV's growth in terms of gross written premium (GWP) is expected to have exceeded 11% in 2013.
Fitch expects that SLV achieved a fairly stable net investment return rate of 4.8% in 2013 (2012: 4.9%). This is in line with Fitch's expectation that the German market average also showed high return rates in 2013. SLV holds strong off-balance-sheet unrealised capital gains, which represented about 11% of the company's total investments at end-2013 (2012: 12.4%). These are well split over different asset classes, which Fitch views positively.
Fitch expects SLV's acquisition expense ratio to have continued to decrease to about 5.0% in 2013 (2012: 5.4%). This is likely to be close to the market average. The market average was 5.0% in 2012. Fitch expects that the administration expense ratio decreased to 2.2% in 2013 (2012: 2.3%), which is likely to be better than market average. The market average was 2.4% in 2012.
Fitch expects that SLV's exposure to equity investments remained high at about 9% of investments at end-2013 (2012: 8.0%), exceeding the market average of below 3%. Given SLV's strong capitalisation and stable investment strategy, the agency expects that SLV's equity exposure will continue to remain above the market average in 2014, making the company more exposed to equity-market shocks than many of its peers.
Given the current relatively small size of the company in terms of business volume and market share, an upgrade is unlikely in the medium term.
Key ratings triggers for a downgrade include a significant weakening of the market position, as measured by changes in GWP and new business market share over a period of time. Also, a sustained drop in SLV's profitability or capitalisation could lead to a downgrade.
SLV is the holding company, and main operating entity, of the Stuttgarter mutual insurance group. The consolidated group had total assets of around EUR6.1bn at end-2012 and generated about EUR640m GWP in life insurance and EUR99m GWP in non-life insurance in 2013.