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Fitch Affirms ALTE LEIPZIGER at IFS 'A+'; Outlook Stable
November 30, 2016 / 11:31 AM / a year ago

Fitch Affirms ALTE LEIPZIGER at IFS 'A+'; Outlook Stable

(The following statement was released by the rating agency) FRANKFURT/LONDON, November 30 (Fitch) Fitch Ratings has affirmed German mutual life insurer ALTE LEIPZIGER Lebensversicherung auf Gegenseitigkeit's (ALL) and its non-life subsidiary ALTE LEIPZIGER Versicherung Aktiengesellschaft's (ALV) Insurer Financial Strength (IFS) ratings at 'A+'. The Outlooks are Stable. ALL is the main life insurance entity and the top holding company of the ALTE LEIPZIGER group. Fitch considers ALL and ALV to be 'Core' members of the group, and their ratings are based on a combined assessment. KEY RATING DRIVERS The ratings reflect the group's strong capitalisation, continued healthy investment returns and sustainable market position in the disability line and corporate pension scheme business. Offsetting these strengths are the group's lack of geographical diversification and the long-term adverse implications of continued low interest rates for German life insurers. We assess the group's capitalisation, as measured by Fitch's Prism factor-based model (Prism FBM), as 'Extremely Strong' based on end-2015 results. We expect the group to maintain its Prism FBM score and a strong Solvency II margin of more than 150% for 2016 without using transitional measures. Fitch regards the group's capital resources as strong. We expect ALL to maintain better than market average capital ratios at end-2016. ALL's shareholder funds (measured as a proportion of actuarial reserves) were 4.2% at end-2015, above the market average of 1.9%. Funds for future appropriation, including terminal bonus funds, (also measured as a proportion of actuarial reserves) were 6.0%, also higher than the market average of 5.3%. Fitch views ALL as better placed than many of its competitors to service its guaranteed interest rate (GIR) payments while investment yields remain low. This is due to its longer asset duration, the strong technical result benefiting from the high proportion of disability business on its books, and its high level of equity and funds for future appropriation. Fitch estimates that if low investment yields persist, ALL would be able to make GIR payments using its investment income for the next 20 years without recourse to other profit sources (assuming a reinvestment yield of only 1.5%). However, operating conditions are putting pressure on German life insurers' profitability. We expect the group's return on equity (RoE) to decline to 5%-7% in 2016 (2015: 8.7%) and further deterioration in the group's profitability in the coming years, due to persistently low interest rates. Based on our analysis, ALL is one of Germany's top five providers of disability insurance. ALL also writes significant amounts of corporate pension scheme business, which supports the strong development of its regular premium business. The group only distributes its products in Germany, which limits its geographical diversification. A focus on the domestic market is typical of medium-sized companies such as ALL. We expect ALL's gross written premiums (GWP) to decrease slightly in 2016. The group reported GWP of EUR2.8bn and had total assets of EUR24.6bn at end-2015. ALL's GWP increased by 7.0% in 2015, while GWP for the German life insurance market as a whole fell 2.6%. We expect ALL's growth for 2016 to be more in line with the market average. The group also has a building society and investment fund business. It has a cooperation agreement with mutual health insurer HALLESCHE Krankenversicherung auf Gegenseitigkeit. RATING SENSITIVITIES An upgrade is unlikely in the near to medium term unless the group increases its size and improves diversification, while maintaining strong capitalisation. Key triggers for a downgrade include a depleted capital position (as evidenced, for example, by the Prism FBM score falling to 'Strong' and being expected to stay at that level) and a loss of the group's strong market position in the disability and corporate pension scheme business. 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 David Prowse Senior Director +44 20 3530 1250 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: Additional information is available on Applicable Criteria Insurance Rating Methodology (pub. 15 Sep 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1015539 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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