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 ‘AA-‘ with a Stable Outlook.
The ratings reflect Fitch’s view of WPV and PNWL as core entities of the German Provinzial NordWest (PNW) insurance group which, in turn, it considers as an integral part of the German savings bank group Sparkassen-Finanzgruppe (Sparkassen) (SFG; ‘A+’/Stable). The ratings of WPV and PNWL benefit from their ownership by SFG.
The PNW group is strongly capitalised and has prudent reserving methods. In addition, WPV has reported a strong underwriting performance. Less positively, PNW’s significant gross written premiums (GWP) share of home insurance in its non-life business means the group has significant exposure to windstorm damage, although this is mitigated by adequate reinsurance. Its regional focus on north-west Germany limits its geographical diversification and growth potential.
PNW’s strong market position in its home market is supported by its dense agency network and its distribution of products through SFG banks. PNWL’s ability to attract single premium business also benefits from the company’s membership of SFG.
WPV achieved a gross combined ratio of 92.2% in 2011 (2010: 94.7%), better than the agency’s expectation for the German non-life market of 96% (2010: 96.3%). PNWL’s GWP decreased to EUR1.4bn in 2011 from EUR1.6bn in 2010 as single premium business reduced by one-third in 2011. However, life new business in regular premiums showed strong growth of 27.0% in 2011.
In 2011, PNW achieved a net investment return rate (NIRR) of 4.1% (2010: 4.4%) and Fitch expects the NIRR to decrease further in 2012, in line with the continued low investment yield environment. PNW’s reported net income increased to EUR116.2m in 2011 (2010: EUR74.8m) as underwriting profitability was stronger and tax payments were lower than the previous year. Fitch expects PNW to report stable net income in 2012.
A key rating trigger for an upgrade or downgrade is PNW’s strategic importance within SFG. Any change in SFG’s rating is likely to be reflected in PNWL’s and WPV’s ratings.
PNW had total assets of EUR21.9bn at end-2011 and reported GWP of EUR3.0bn in 2011. PNW consists of several operating insurers, of which WPV with total assets of EUR2.0bn and PNWL with total assets of EUR17.8bn are the largest ones.
