Fitch Ratings has affirmed Liechtenstein-based PrismaLife’s insurer financial strength at ‘BBB+’ and long-term issuer default rating at ‘BBB’ and senior bond rating at ‘BBB’ with a stable outlook for both ratings.
The affirmation reflects the life insurer’s low investment risk, its maintained strong capital position and its good performance in H111. These positive rating factors are partly offset by PL’s low product diversification, relatively small size and short track record.
PL faces limited investment risks as policyholders carry the risk of falling equity markets. Fitch views positively the fact that PL’s mortality and disability risks are largely reinsured. This risk-averse insurance approach has low regulatory capital requirements under the current Solvency I regime, resulting in a regulatory capital position of over 1,000% in recent years. Fitch expects that PL will continue to report strong regulatory solvency ratios under Solvency II. Based on its risk-based capital assessment, Fitch views PL’s capitalisation as strong and recognises that the company’s capital shows resilience in the agency’s stress tests.
At year-end 2010, PL reported gross-written premiums (GWP) of EUR178.4m and a net income of EUR3.6m (2009: EUR2.5m). Fitch views positively that PL was able to achieve a premium increase of about 6.5% in H111 compared to H110, after three years of stagnating premiums when the market showed a declining trend. Fitch will continue to follow PL’s premium development closely as consumer demand for unit-linked insurance products tends to decrease when capital markets deteriorate and PL’s earnings are highly dependent on premium income.
Fitch notes that PL’s distribution mix is gradually moving away from its strongest distribution channel, AFA International AG, which is owned by Sky Tower Holding (STH), which also majority owns PL. Fitch views this positively, since a more widespread sales channel mix reduces dependencies and offers new growth opportunities. However, PL is able to exert greater control over the AFA channel than over independent brokers.
Fitch notes that PL’s financial leverage remains high at 31% at end-2010, but this is commensurate with the current rating. Leverage has been decreasing because PL’s capital has been increasing as a result of retained earnings and limited dividends. Furthermore, the company has reduced its amount of outstanding senior debt to EUR16.1m from EUR20.0m through repurchases in 2010 and 2011, which has reduced its debt leverage and improved its interest coverage in 2010 to 3.7x (2009: 2.7x), which also benefited from improved net income.
Key rating factors that could lead to an upgrade are interest coverage exceeding 7x, financial leverage below 28% and sustained growth in GWP. A decrease of interest coverage below 3x, financial leverage above 35% or significant deterioration of GWP could lead to a downgrade.
PL had total assets of EUR694.8m at end-2010 and is owned by STH (87.4%) and its management team (12.6%).
Source : Fitch Ratings Press Release
