Fitch Ratings has affirmed German life insurer Lebensversicherung von 1871 a.G. Muenchen’s (LV 1871) Insurer Financial Strength (IFS) rating at ‘A+’ with Stable Outlook.
The rating reflects LV 1871’s strong risk-based capitalisation at end-2010, as evidenced by its regulatory solvency ratio and Fitch’s assessment of the company’s capital position. Fitch also views positively the high credit quality of LV 1871’s fixed-interest portfolio and the strong new business figures in 2010. However, these factors are partly offset by the life insurer’s relatively small size.
LV 1871’s new business volume increased by 22.7% to EUR1.6bn in 2010 from EUR1.3bn in 2009 while the German life insurance sector (GLIS) reported an increase of 4.8% over the same period. The agency believes that the achieved growth in new business is sustainable, mainly due to a new disability product line, which generated 38% of LV 1871’s new business volume.
Due to LV 1871’s large share of disability business in its books, the company is in a good position to mitigate the impact of the low interest rate environment. The GLIS is still dominated by guaranteed interest rate (GIR) policies. On average, the industry has to achieve an investment return slightly above 3% to afford GIR payments. In a long-lasting low interest rate environment, LV 1871’s technical earnings from its disability business would significantly mitigate any potential issues in meeting GIR payments, which Fitch views positively.
LV 1871’s net investment return rate was 4.5% in 2010 (2009: 4.1%) slightly above the expected GLIS average of 4.3% (2009: 4.2%). LV 1871’s acquisition expense ratio was 5.1% in 2010 (2009: 5.1%) and its administration expense ratio was 2.5% in 2010 (2009: 2.5%). LV 1871’s lapse ratio improved to 4.8% in 2010 (2009: 5.4%), whereas the GLIS is expected to report a ratio of 5.4% (2009: 6.2%).
Key rating drivers that could lead to a downgrade include a reduction in the investment portfolio’s creditworthiness, deterioration in new business figures and significantly depleted capitalisation. Fitch views an upgrade of the rating as being unlikely in the near term due to the low level of LV1871’s diversification and hence its vulnerability to external effects.
LV 1871 is a Munich-based mutual life insurer that directly owns 100% of the insurance companies Delta Direkt Lebensversicherung AG, TRIAS Versicherung AG, LV 1871 Pensionsfonds AG and LV 1871 Private Assurance AG. The consolidated group had total assets of EUR4.8bn (2009: EUR4.4bn) and GWP of EUR739.0m (EUR612.0m) at end-2010. LV 1871 distributes its products through a network of around 8,700 distribution agreements with IFAs, multiple agents and banks.
Source : Fitch Ratings
