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 ‘A+’ with Stable Outlook.
WPV and PNWL are part of the German Provinzial NordWest (PNW) insurance group. Fitch views WPV and PNWL as core entities of PNW. The agency also views PNW as an integral part of the German savings bank group Sparkassen-Finanzgruppe (Sparkassen) (SFG), which has an Issuer Default Rating (IDR) of ‘A+’ with Stable Outlook.
The ratings reflect Fitch’s view of PNW’s strategic importance within SFG, PNW’s very strong capitalisation, prudent reserving methods and WPV’s strong underwriting performance. Negative rating factors include PNW’s high exposure to windstorms caused by its significant share of home insurance in non-life business which is mitigated by adequate reinsurance, and its regional focus on north-west Germany which limits PNW’s regional diversification and growth potential.
However, PNW has a strong market position in its home market, which is supported by its dense agency network in its home region and the continuous stable product distribution through SFG banks. PNWL’s ability to attract single premium business also benefits from the company’s membership of SFG.
In 2009, PNW achieved a net investment return rate (NIRR) of 4.7% (2008: 1.8%) and Fitch expects the NIRR for 2010 will again be over 4%. After the financial crisis led to insufficient investment income to cover guaranteed interest rate (GIR) payments in 2008, PNWL restructured its investments in 2009. Fitch believes that PNWL’s investment restructuring was successful as investment income was sufficient to cover guaranteed interest rate (GIR) payments in 2009 and 2010.
WPV’s underwriting performance was strong in 2009 and 2008, as shown by its gross combined ratio (CR) of 88.0% (2008: 90.8%), far below the German non-life market average of 94.5% (2008: 93.6%). However, Fitch expects a significant increase in WPV’s gross CR for 2010, as PNW has already announced an increase in gross claims of about 11% for 2010. However, Fitch expects PNW’s comprehensive reinsurance programme to mitigate its net claims.
Key rating drivers for the ratings include PNW’s strategic importance within SFG. Any movement in SFG’s rating could be reflected in PNWL’s and WPV’s rating.
PNW had total assets of EUR21.6bn at end-2009 and reported gross written premiums (GWP) of EUR3.2bn in 2009. PNW announced a GWP increase of 1.7% for 2010. PNW consists of several operating insurers, of which WPV with total assets of EUR2.1bn and PNWL with total assets of EUR17.8bn form the largest entities.
Source : Fitch Ratings Press Release
