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Fitch Affirms Provinzial NordWest's IFS at 'AA-' Outlook Stable
October 5, 2017 / 2:45 PM / in 18 days

Fitch Affirms Provinzial NordWest's IFS at 'AA-' Outlook Stable

(The following statement was released by the rating agency) FRANKFURT/LONDON, October 05 (Fitch) Fitch Ratings has affirmed life insurer Provinzial NordWest Lebensversicherung AG's (PNWL) and non-life insurer Westfaelische Provinzial Versicherung AG's (WPV) Insurer Financial Strength (IFS) ratings at 'AA-' (Very Strong). The Outlooks are Stable. KEY RATING DRIVERS The ratings reflect Fitch's view of WPV and PNWL as core entities of the German Provinzial NordWest (PNW) insurance group, which we consider an integral part of the German savings bank group Sparkassen-Finanzgruppe (Sparkassen) (SFG: Issuer Default Rating (IDR) A+/Stable). WPV and PNWL's ratings benefit from their ultimate ownership by SFG. We align their implied IDRs with SFG's IDR. PNW is fully owned by SFG and public-sector institutions. PNW's insurance activities form a core part of SFG's product offering to its customers in a specified large geographical area. For example, two-thirds of PNWL's life business is sold by SFG. In addition, PNW's brand and agency network is closely linked to SFG banks. Fitch thus considers PNW as SFG's insurance arm in its region of operations and believes that there is a high probability that SFG would provide support for it if the need ever arose. On a standalone basis, PNW has very strong capitalisation, a strong business profile and prudent reserving methods and has consistently reported strong underwriting performance in non-life insurance over at least the past five years. Less positively, the significant share of home insurance in PNW's non-life business exposes the group to windstorm damage, although this is mitigated by adequate reinsurance. Its regional focus on north-west Germany limits its geographical diversification and growth potential. PNW scored 'Very Strong' in our Prism factor-based capital model at end-2016 and we expect the score to be maintained at end-2017. Our non-life capital ratios scored very strong, and life capital ratios were strong at year-end 2016. Overall, we expect stable capital ratios for end-2017, albeit life capital ratios may slightly weaken due to the high cost for the additional mathematical reserve (Zinszusatzreserve, ZZR). PNW's business profile benefits from being SFG's insurance arm in its region. On an aggregate basis, SFG's insurance operations form the second-largest primary insurance group in Germany with a market share of 11.1% in 2016. The group is market leading in buildings insurance, in which it had a market share of 31.5%. We expect net income to decrease to less than EUR100 million in 2017 from EUR201 million in 2016 because PNW restructured its reinsurance in 2016. This resulted in a positive one-off profit of EUR125 million (pre-tax). We expect that the non-life net combined ratio will weaken but remain below 97% in 2017 and that the life underwriting result will remain low. In non-life, the group's net combined ratio improved to 82.0% in 2016 (2015: 95.6%) because of the restructuring of reinsurance and favourable claims experience. The life underwriting result is pressured by ZZR costs, which we expect to be about EUR350 million in 2017, up from EUR328 million in 2016. Higher releases from fixed-income investments' capital gains will help to keep the result at a low, but still positive level. RATING SENSITIVITIES As Fitch regards PNWL and WPV as integral parts of SFG, any change in SFG's IDR is likely to be reflected in the insurers' ratings. In addition, a downgrade of PNWL's and WPV's ratings could be triggered by an adverse change in Fitch's view of the strategic importance of public sector insurers within SFG or of PNWL and WPV within PNW. We consider such a change as unlikely in the near to medium term but it could result, for example, from a severely depleted capital position at PNWL and WPV. Contact: Primary Analyst Dr Christoph Schmitt Director +49 69 768076 121 Fitch Deutschland GmbH Neue Mainzer Strasse 46-50, D-60311 Frankfurt am Main Secondary Analyst Dr Stephan Kalb Senior Director +49 69 768076 118 Committee Chairperson Willem Loots Senior Director +44 20 3530 1808 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Insurance Rating Methodology (pub. 26 Apr 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy 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 WEB SITE AT WWW.FITCHRATINGS.COM. 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