(The following statement was released by the rating agency)
Oct 12 - Fitch Ratings has upgraded German insurers Nuernberger Lebensversicherung AG's (NLV), Nuernberger Allgemeine Versicherung AG's (NAV) and Nuernberger Krankenversicherung AG's (NKV) Insurer Financial Strength (IFS) ratings to 'A+' from 'A'. The agency has also upgraded their holding company Nuernberger Beteiligungs-Aktiengesellschaft's (NB) Issuer Default Rating (IDR) to 'A-' from 'BBB+'. The Outlook on all ratings is Stable. NB's EUR100m subordinated debt has been upgraded to 'BBB-' from 'BB+'.
The upgrade reflects Nuernberger group's (NG) strong results and improved debt leverage at end-2011 and the continued trend in both in H112. With a net combined ratio of 95.7% in 2011 (2010: 105.1%), NG's non-life underwriting profitability materially outperformed the agency's expectation of 100%. For H112, NG reported a gross combined ratio of 92.7% (H111: 91.8%), which is better than Fitch's expectation of 96% for the German non-life market in 2012.
The upgrade also reflects NG's strong capitalisation, its leading position in the German unit-linked life and disability market, and its relative resilience to a long-lasting low interest rate environment compared to many of its competitors. Offsetting these positive rating factors is NG's continued modest investment income and relatively low fixed charge coverage which at 4.4x in 2011 remains below the agency's expectation for the rating level.
NG reported pre-tax income of EUR88.1m in 2011, up from EUR62.1m in 2010. The increase was primarily driven by a strong improvement in the group's non-life underwriting result. For H112, NG reported pre-tax income of EUR77.3m (H111: EUR71.9m). Subject to no unforeseen developments, Fitch estimates that NG's 2012 pre-tax income will be in the range of EUR90m - EUR100m.
NG's improved underwriting result was driven by a reduction in the proportion of non-life motor insurance and more favourable claims experience in 2011. The agency expects NG to report a solid underwriting result in 2012 as NG has continued to focus on underwriting profitability in the year.
As a provider of unit linked products, NG saw a fall in demand for this business through the financial crisis and the company's lapse ratio has been worse than the market average. However, NG's life new business increased by more than a quarter in H112. The strong growth was partly due to a surge in business sold towards the end of 2011 business but with inception dates in January 2012. Fitch expects NG to achieve new business above the market average in 2012.
NG's 2011 fixed charge coverage improved to 4.4x (2010: 3.4x) and 10.3x in H112 (H111: 7.1x). In addition, the financial leverage ratio decreased to 16% at end-H112 compared to 20% at end-2011. Fitch expects that NG will achieve fixed charge coverage of more than 5.0x in 2012.
Fitch views a further upgrade of the ratings as unlikely in the near to mid-term. However, key rating triggers for an upgrade over the longer term would include continued strong underwriting profitability, further improvements in the level of fixed charge coverage and significant increase in geographical diversification.
Key rating triggers for a downgrade include weak overall profitability, material erosion in capital and interest coverage falling below 3.5x.
In H112, NG reported IFRS gross written premiums (GWP) of EUR1.8bn (H111: EUR1.7bn) and had total assets at end-H112 of EUR23.6bn (end-2011: EUR22.9bn). The life segment reported GWP of EUR1.4bn, the non-life segment GWP of EUR0.4bn and the health segment GWP of EUR0.1bn.
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(Caryn Trokie, New York Ratings Unit)