Fitch Ratings has affirmed DEVK Deutsche Eisenbahn Versicherung Sach- und HUK-Versicherungsverein a.G. Betriebliche Sozialeinrichtung der Deutschen Bahn’s (DEVK non-life) and DEVK Deutsche Eisenbahn Versicherung Lebensversicherungsverein a.G. Betriebliche Sozialeinrichtung der Deutschen Bahn’s (DEVK life) Insurer Financial Strength (IFS) ratings at ‘A+’. At the same time, the agency has affirmed DEVK non-life’s main subsidiaries’ IFS ratings at ‘A+’ and the subsidiary Echo Rueckversicherungs-AG’s (Echo Re) IFS rating has been affirmed at ‘BBB+’. The Outlooks on the IFS ratings are Stable. A full list of rating actions is below.
The affirmations reflect the group’s robust capitalisation, the strong reserving methodologies of DEVK non-life, and its healthy market position within the motor and household contents insurance lines. DEVK non-life’s current underwriting profitability has been significantly weakened by ongoing competition within Germany’s motor insurance market. However, DEVK non-life’s average motor premium per policy increased in 2010 after several years of declining premiums.
Fitch views DEVK group’s capital generation as strong. DEVK non-life increased shareholder funds by more than EUR70m to EUR1,308m in 2010 and has increased its shareholder funds by almost EUR100m on average per annum since 2005 despite strong competition in the motor line. Fitch expects shareholder funds to increase by more than EUR50m in 2011.
Fitch believes that DEVK non-life’s claims reserving methods are strong enough for it to withstand Germany’s motor line competition without losing market share or its reported capitalisation deteriorating. As the motor line generates over 50% of DEVK’s non-life gross written premiums (GWP), the development of motor premium rates will significantly influence DEVK’s underwriting profitability. DEVK is one of Germany’s top 10 motor insurers measured by premium income. Fitch expects the German motor insurance market as a whole to report improved underwriting profitability in 2011.
In life insurance, DEVK’s net investment return rate at 4.5% in 2010 was above the German market average of 4.3%. Annual premiums increased by 2.3% in 2010 while the market’s dropped by 1.5%. DEVK group’s life new business volume increased by 7.7%, higher than the market average of 4.8% in 2010. DEVK non-life increased Echo Re’s shareholder funds by CHF30m in 2010. However, currency translation effects, start-up costs and competitive premiums led to a loss of CHF10.7m in 2010. Echo Re reported increased shareholder funds of CHF65.6m (2009: CHF46.3m) at end-2010.
Factors that could lead to an upgrade include a substantial improvement in DEVK’s non-life underwriting profitability, resilience in Germany’s motor line competition and substantial improvement of DEVK life operations’ market position.
Factors that could lead to a downgrade include any significant change in the strength of reserving methodologies and/or a substantial decrease in motor premiums due to Germany’s motor competition.
In 2010 consolidated accounts, DEVK non-life had gross written premiums (GWP) of EUR2.0bn (2009: EUR2.0bn) and total assets of EUR8.1bn (2009: EUR7.7bn). DEVK life had GWP of EUR0.4bn (2009: EUR0.4bn) and total assets of EUR5.4bn (2008: EUR5.3bn). The DEVK insurance group had about 4,000 staff at year-end 2010.
Source : Fitch Ratings Press Release
