Fitch Ratings has revised Atlanticlux Lebensversicherung S.A.’s (ATL) rating Outlooks to Stable from Negative and affirmed its Insurer Financial Strength (IFS) Rating at ‘BBB’ and Long-term Issuer Default Rating (IDR) at ‘BBB-‘.
The revision of the Outlooks to Stable from Negative reflects the recovery of the financial markets and the fact that ATL’s premium income and earnings held up relatively well despite the impact of the financial crisis. Fitch notes that drops in the German book of business in 2009 and 2010 were partly offset by strong growth in the Italian market, illustrating the benefits of geographic diversification.
ATL’s ratings reflect the life insurer’s relatively risk-averse insurance approach with limited insurance and investment risks, as policyholders or other external parties that provide guarantees offered within ATL’s policies carry most of the risk of adverse capital market movements. Remaining mortality and disability risk is largely reinsured, which Fitch views positively.
Positive rating factors include ATL’s strong capitalisation, which is reflected in its satisfactory regulatory solvency margin and resilience in Fitch’s stress test. ATL upstreams a moderate EUR620,000 of its earnings to its parent companies, FWU AG and VHV, and an increase in dividends is not expected in the near future, according to the company.
ATL reported relatively robust earnings in its 2008 and 2009 financial statements and lower than expected declines in premium income overall. While premiums decreased for the third consecutive year, net income recovered in 2010. Fitch notes ATL’s vulnerability to a reduction in demand for unit-linked insurance policies as well as a reduction in the volume of assets under management (AUM). Fitch positively notes that ATL has taken measures to limit the risk of increased lapses in periods of poor performing capital markets by introducing a guarantee that secures any peak-value of a policy only at its maturity. The investment risk of that guarantee has been hedged with an external party.
Fitch views ATL’s high exposure to unit-linked policies as an offsetting factor, as the development of new business, as well as ATL’s profitability is highly exposed to the future developments of the financial markets. Additionally, ATL distributes its products exclusively via brokers, which creates dependencies as this form of distribution is comparatively hard to control. Furthermore, the ratings are constrained by operational risk considerations due to ATL’s relatively small size and relatively short track record.
Fitch views the current low interest environment as a challenge to ATL. However, compared to most German peers, ATL is in a more comfortable position since the average guaranteed interest rate in its book of business is significantly lower than the German market. ATL’s policies mainly carry low or soft forms of guarantees.
Fitch will continue to closely follow ATL’s top-line and AUM developments in the context of the company’s profitability. Continued improvements in the franchise and scale of the company and demonstrated stability in the company’s top-line developments among the various jurisdictions could lead to an upgrade. A significant and sustained decrease in revenues leading to deterioration in profitability could lead to a downgrade.
ATL is a Luxemburg-based life insurer offering unit-linked and term insurance products, predominantly in Germany, France and Italy. ATL’s main shareholder with 74.9% ownership is FWU AG, a privately owned holding company, which also runs Islamic Takaful insurance operations. The remaining 25.1% of ATL is owned by VHV, a medium sized German insurance group.
Source : Fich Ratings Press Release
