Fitch Affirms DEVK's IFS at 'A+'; Echo Re at 'A-'; Outlook Stable
At the same time, the agency has affirmed DEVK P&C's main subsidiaries' IFS ratings at 'A+' and the Switzerland-based reinsurance subsidiary Echo Rueckversicherungs-AG's (Echo Re) IFS rating at 'A-'. The Outlooks on the IFS ratings are Stable. A full list of rating actions is available at the end of this commentary.
DEVK P&C and DEVK Life are the DEVK group's holding mutual insurers. Fitch considers all DEVK branded entities to be 'Core' members of the group and their ratings are based on the agency's assessment of the combined group.
KEY RATING DRIVERS
The affirmations reflect the DEVK group's robust capitalisation, DEVK P&C's strong reserving methodologies and medium-sized market position. DEVK P&C's underwriting profitability remains pressured by the high proportion of motor insurance in its non-life segment.
The affirmation of Echo Re reflects Fitch's view that despite the weak underwriting results for 2015, the reinsurer continues to be "very important" to the DEVK group as defined in the agency's group rating methodology. Fitch expects Echo Re to continue to play a key role in DEVK's reinsurance operations outside Europe and to improve the group's geographical diversification. Fitch believes that Echo Re has built up a sustainable franchise in Asia and the Middle East. As a result Echo Re's rating benefits from a three-notch uplift from its standalone profile.
In Fitch's Prism factor-based model (Prism FBM) DEVK scored 'extremely strong' based on 2015 results, which we expect to be maintained in 2016. We regard DEVK's capitalisation as very strong, which is supported by the group's regulatory Solvency I margin of 316% at end-2015.
Fitch believes that DEVK P&C's claims reserving methods are strong enough for the insurer to withstand competitive pressures in Germany's motor insurance market without a loss of market share or deterioration in capitalisation. As the motor line generates over 50% of DEVK P&C's non-life gross written premium (GWP) in primary insurance, the development of motor premium rates will significantly influence DEVK's underwriting profitability. The DEVK group is one of Germany's top 10 motor insurers by premium income. Fitch estimates that German motor GWP grew 2%-3% in 2015 and expects a small increase of 1% for 2016.
DEVK P&C's consolidated net investment return rate increased to 4.5% in 2015 (2014: 4%), while DEVK Life and DEVK P&C's life registered a slightly lower investment return rates of 4.1% and 4.1%, respectively, in 2015 (2014: 4.3% and 4.2%, respectively).
In its 2015 consolidated accounts, DEVK P&C had total assets of EUR11.8bn and DEVK Life had total assets of EUR5.8bn. The DEVK group had about 3,500 staff at end-2015.
Key rating triggers for an upgrade would include substantial improvements in DEVK group life operations' market position and DEVK's non-life underwriting profitability and resilience to competitive pressure in the German motor insurance market. However, Fitch views an upgrade of DEVK's ratings as unlikely in the near to medium term.
Key rating triggers for a downgrade of the DEVK group include the Prism FBM score falling to 'very strong', a significant weakening of reserving methodologies or a substantial decrease in motor premiums due to pricing pressure from competition.
The key rating trigger for an upgrade of Echo Re would be a significant increase in its strategic importance for the DEVK group, in Fitch's view. However, the agency views this as unlikely in the near to medium term.
A key rating trigger for a downgrade of Echo Re would be reduced strategic importance of the company within the group. This may be manifested through a reduction in the importance of Echo Re within the DEVK group's reinsurance operations or of reinsurance operations as a whole within the DEVK group.
Echo Re's IFS rating has been affirmed at 'A-'. The following seven entities have been affirmed at IFS 'A+'. All eight entities have Stable Outlooks.
DEVK Deutsche Eisenbahn Versicherung Sach - und HUK-Versicherungsverein a. G. Betriebliche Sozialeinrichtung der Deutschen Bahn
DEVK Deutsche Eisenbahn Versicherung Lebensversicherungsverein a. G. Betriebliche Sozialeinrichtung der Deutschen Bahn
DEVK Rueckversicherungs - und Beteiligungs-AG
DEVK Allgemeine Versicherungs-AG
DEVK Allgemeine Lebensversicherungs-AG