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TEXT-Fitch affirms Provinzial NordWest's IFS at 'AA-'
January 23, 2013 / 4:51 PM / in 5 years

TEXT-Fitch affirms Provinzial NordWest's IFS at 'AA-'

Jan 23 - Fitch Ratings has affirmed non-life insurer Westfaelische
Provinzial Versicherung AG's (WPV) and life insurer Provinzial NordWest
Lebensversicherung AG's (PNWL) Insurer Financial Strength (IFS) ratings at 'AA-'
with a Stable Outlook.

The ratings reflect Fitch's view of WPV and PNWL as core entities of the German
Provinzial NordWest (PNW) insurance group which, in turn, it considers an
integral part of the German savings bank group Sparkassen-Finanzgruppe
(Sparkassen) (SFG; 'A+'/Stable). The ratings of WPV and PNWL benefit from their
ownership by SFG.

In Q412, a minority of PNW's shareholders expressed an interest in a disposal of
their PNW stake through a possible sale to Allianz. However, the majority did
not agree, and expressed a desire to retain their shareholding in the group.

A possible merger of PNW with the insurance group Provinzial Rheinland (PRL,
also considered an integral part of SFG) is currently being considered.
Consultations are expected to last for several months. PNW is already the
second-largest public sector insurance group and a merger of PNW and PRL could
strengthen this position. A merger within the SFG insurance network or ownership
changes within the SFG would not affect PNW's ratings.

Fitch believes that any change to PNW's ownership structure would remain within
SFG and its broader network. Recently, SFG held a conference in Berlin to
improve and seek greater benefits across its insurance network. Furthermore, the
vast majority of savings banks in the SFG are opposed to a private stakeholder
within the SFG insurance network.

The PNW group is strongly capitalised and has prudent reserving methods. In
addition, WPV reported strong underwriting performance in recent years. Less
positively, PNW's significant concentration in home insurance within its
non-life segment means the group has significant exposure to windstorm damage,
although this is partly mitigated by adequate reinsurance protection. PNW's
regional focus in north-west Germany limits its geographical diversification and
growth potential.

PNW's strong market position in its home market is supported by its large agency
network and distribution of its products through SFG banks. PNWL's ability to
attract single premium business also benefits from the company's membership of
SFG, but results in more volatile GWP growth for PNWL. Fitch expects the group's
life GWP to have declined in 2012.

In 2011, PNW achieved a net investment return rate (NIRR) of 4.1% and Fitch
expects the NIRR to have been stable or improved slightly in 2012. PNW reported
net income of EUR116.2m in 2011 and Fitch expects PNW to report net income of
more than EUR100m for 2012.

A key rating trigger for an upgrade or downgrade is PNW's strategic importance
within SFG. Any change in SFG's rating is likely to be reflected in PNWL's and
WPV's ratings.

PNW had total assets of EUR21.9bn at end-2011 and reported GWP of EUR3.0bn.
Fitch expects a small decrease in PNW's premium income for 2012. PNW consists of
several operating insurers, of which WPV with total assets of EUR2.0bn and PNWL
with total assets of EUR17.8bn are the largest.

Additional information is available on The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable criteria 'Insurance Rating Methodology', dated 11 January 2013, is
available at

Applicable Criteria and Related Research:
Insurance Rating Methodology - Amended

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