OREANDA-NEWS. Fitch Ratings has affirmed German insurers Nuernberger Lebensversicherung AG's (NLV), Nuernberger Allgemeine Versicherung AG's (NAV) and Nuernberger Krankenversicherung AG's (NKV) Insurer Financial Strength (IFS) ratings at 'A+'. The agency has also affirmed their holding company Nuernberger Beteiligungs Aktiengesellschaft's (NB) Issuer Default Rating (IDR) at 'A'. The Outlook on all ratings is Stable.

KEY RATING DRIVERS

Fitch views NLV (life), NAV (non-life) and NKV (health) as core to the Nuernberger group (NG), and their ratings are therefore based on a combined group assessment, under the agency's group rating methodology.

NG's rating reflects its strong capitalisation and its well-diversified earnings. NG's leading market position in German unit-linked life and disability market significantly mitigates its risk exposure to sustained low investment yields. Offsetting these positive rating factors are the asset-liability duration gap in the life segment, its above-market average exposure to equity investments and the current difficult operating environment for German life insurers.

Fitch regards NG's capitalisation as strong and commensurate with its rating. Based on the agency's Prism factor-based model (FBM), NG's capital level is 'strong', which has weakened from 'very strong' in 2014. We expect NG to maintain its strong capitalisation despite the increasing pressure on capital in life segment. The quality of available capital is high, as it consists mainly of shareholder funds and funds for future appropriation. NG has not yet published its Solvency II ratios, but we expect it to be comfortably over 100% without use of transitional measures.

Fitch considers NLV as better prepared than many of its competitors to service its guaranteed interest rate payments in a persistently low interest rate environment. This is due to the high proportion of unit-linked and disability business in its books. The technical earnings from these lines are available to mitigate any shortfall in investment earnings against guaranteed interest rate (GIR) payments.

Like many German Life insurers, NG's average duration of assets is shorter than that of its liabilities for the life segment. We view this as negative for the rating, since it increases the NG's exposure to interest rate changes. However, we believe NG's duration gap is slightly lower than the market average, since the portion of classic annuity products with very long duration in its portfolio is lower than the market average.

NG's equity exposure is higher than the average for German primary insurers. As a proportion of total investments (excluding unit-linked investments), the group's exposure to equity investments was 9.4%, significantly higher than the market average of 4.5% at end-2015, meaning that the group is somewhat more exposed to market volatility than peers.

In 2015, consolidated net income reverted to a normalised level of EUR74m (2014: EUR110m) after the 2014 result was affected by positive one-off effects. The life total income decreased compared with 2014 partly due to lower investment income and costs relating to higher reserve requirements (Zinszusatzreserve) that increased to EUR242m in 2015 (2014: EUR147.8m). In the non-life segment, NG reported a strong underwriting result with a net combined ratio of 95.4% in 2015 (2014: 97.4%).

NG had total assets of EUR30.2bn at end-2015 (end-2014: EUR29.2bn). Gross written premiums at end-2015 were EUR2.5bn for the life segment, EUR0.7bn for the non-life segment and EUR0.2bn for the health segment.

RATING SENSITIVITIES

An upgrade is unlikely in the short to medium term unless the group increases its size/scale and improves diversification, while improving capitalisation to "very strong" based on Prism FBM.

Weak overall profitability over a period of time, as indicated for example by a return on equity below 6%, and/or sustained material erosion in capital, for example, to a level of below "strong" in Fitch's Prism FBM capital assessment could lead to a downgrade.