Fitch Ratings has today changed WWK Lebensversicherung a.G.’s (WWK Leben) and subsidiary WWK Allgemeine Versicherung AG’s (WWK Allg.) Outlook to Negative from Stable. Their Insurer Financial Strength (IFS) ratings have been affirmed at ‘A+’. Furthermore, the agency has again assigned WWK Leben and WWK Allg. the Fitch Financial-Strength- Seal, which is given to financially strong insurers.
The Negative Outlook reflects the deterioration in WWK Allg.’s underwriting profitability caused by its loss-making motor business. WWK Allg.’s weakened net combined ratio of 112% in 2008 (compared to 105% in 2007) reflected a EUR4.9m underwriting loss and a 26% reduction in equalisation reserves. In the past, WWK Allg. generated a relatively small portion of premiums compared to its parent; however, in recent years the company has strongly grown its P&C business and in particular its motor book (117% revenue growth in 2008). Fitch considers that WWK Allg.’s unprofitable motor book has started to weaken WWK Allg.’s capitalisation and believes that WWK Allg. could become a drag on WWK Leben since support may be required in future.
However, the affirmation of WWK Leben’s rating reflects the strong performance of the life insurer in 2008, despite the global financial crisis and an overall difficult operating environment. The implementation of a hedging programme in August 2007 considerably reduced the company’s equity exposure at an early stage of the financial crisis and led to a relatively resilient investment result in 2008. The hedged equity exposure amounted to 0.6% of total invested assets at FYE08. Currently the company does not intend to expand its strategic equity exposure, which Fitch views as a positive. Like its peers, the group built up a corporate bond portfolio in Q109 amounting to 7% of WWK Leben’s investment portfolio and 14% of WWK Allg.’s investment portfolio at end-April 2009. Fitch expects the group to achieve a better investment performance compared to peers in 2009.
In Fitch’s view WWK Leben’s capitalisation is supportive of the current rating level. Unrealised gains increased to EUR187.8m (2007: EUR111.2m) and shareholder funds to EUR160.8m (2007: EUR155.8m) at end-2008. As a proportion of actuarial reserves, at 3.9% WWK Leben’s shareholder funds remained significantly above market average. In Fitch’s stress testing calculation the decrease in unrealised gains on equities and the decrease in free RfB (Ruckstellung fur Beitragsruckerstattung) is more than offset by the considerably reduced equity exposure.
Fitch notes that WWK Leben was able to offset the decrease in its unit-linked new business by strong sales in other lines of business such as long-term disability in 2008. Further, WWK Leben has responded to the changing market environment by introducing a hybrid product in 2009.
WWK Leben operates as the parent company of the group and is managed in the legal form of a mutual insurance company. The group offers a range of products in the life and non-life insurance sectors through an exclusive distribution network of agents, independent financial advisers and multi-line agents. Fitch views WWK Allg. as core to and fully integrated with the group.
