OREANDA-NEWS. Fitch Ratings has affirmed Germany-based life insurer VOLKSWOHL BUND LEBENSVERSICHERUNG a.G.'s (VBL) Insurer Financial Strength (IFS) rating at 'A+'. The Outlook is Stable.

KEY RATING DRIVERS
The rating reflects VBL's strong capitalisation, its strong business position within the independent financial advisor (IFA) and sales organisation markets, and sound expense ratios. Negative rating drivers are its exposure to a difficult operating environment for German life insurers and its limited geographical diversification as VBL operates solely in Germany.

Fitch expects VBL's consolidated shareholders' funds to have increased to at least EUR140m at end-2014 from EUR134m at end-2013 and its funds for future appropriation, including terminal bonus funds, to at least EUR590m from EUR578m.

Fitch estimates that VBL's capital resources increased by more than 10% in 2014, supported by the private placement of EUR60m subordinated debt. However, actuarial reserves are expected to have increased by the same level. Fitch expects VBL's available life funds, as a proportion of actuarial reserves, to have been stable at 8.3% at end-2014, compared with its estimate for the German life market as a whole of 7.1% , down from 7.4% at end-2013.

VBL's capitalisation remained strong at end-2014, on the basis of Fitch's risk-adjusted assessment, as did the regulatory group solvency ratio, which we estimate to have been more than 200% at end-2014 (end-2013: 216%). Fitch expects that, with the introduction of Solvency II, VBL's group solvency ratio will decline significantly. Off-balance sheet unrealised capital gains more than doubled to EUR1.5bn at end-2014, supported by falling interest rates.

Fitch expects VBL to report a net investment return rate of 4.1% for 2014 (2013: 4.7%), which will most likely be below market-average (2013: 4.7%). Fitch expects a fairly stable return rate for the life market as insurers are likely to have continued realising capital gains from fixed-income investments to finance the cost of increasing an additional actuarial reserve (Zinszusatzreserve) in 2014. Fitch estimates the Zinszusatzreserve costs for the market as a whole to have been EUR8.5bn in 2014.

Expense and mortality profits have been consistently strong. Fitch expects VBL's expense ratios to have outperformed the market in 2014 and for this trend to continue into 2015. In 2013, VBL's administration expense ratio was 2% and its acquisition expense ratio was 4.8%, which were better than the market averages of 2.3% and 5.1%, respectively.

VBL is the holding company of the VOLKSWOHL BUND group (VBG). It has the legal form of a mutual and is VBG's most important operating entity, with total assets of EUR10.6bn, equating to 99% of the group's total, at end-2013. The company focuses on life insurance for private customers and small- and medium-sized enterprises in Germany. VBG generated gross written premiums of EUR1.4bn in 2013.

RATING SENSITIVITIES
An upgrade of the rating is unlikely in the near- to medium-term, given the difficult operating environment for German life insurers.

Key rating triggers for a downgrade include a weakened capital position with a solvency margin below 170%, and a significant decline in the company's market position.