---

S&P Cuts Ratings On Nuernberger Allgemeine Versicherung

14 October 1998

S&P Cuts Ratings On Nuernberger Allgemeine Versicherung

    LONDON, Oct. 14 -- Standard & Poor's today lowered its
counterparty credit and insurer financial strength ratings on Nuernberger
Allgemeine Versicherungs - AG (NAV) to single-'A'-plus from double-'A'-minus.
At the same time, Standard & Poor's affirmed its single-'A'-plus counterparty
credit and insurer financial strength ratings on Nuernberger
Lebensversicherung AG (NLV). The outlook on both companies is stable.
    The rating action is based on a number of challenges the Nuernberger
Group will have to face in the increasingly competitive German nonlife and
life insurance market. Standard & Poor's considers NLV, as well as NAV, to be
core to the Nuernberger Group. The rating reflects the underlying financial
strength of the Group.
    Further rating factors are the Group's very strong capitalization, NAV's
very strong operating performance, and sound niche position in the German
motor market. Offsetting these strengths are a very high underwriting
concentration in German motor insurance and NAV's reliance on the independent
German car dealerships as its most important distribution channel.
    NLV and NAV are the main life and nonlife operating entities of the
Nuernberger Group.
    MAJOR RATING FACTORS:
    -- Standard & Poor's believes both life and nonlife insurance are
integral to the Nuernberger Group's strategy. At year-end 1997, gross premiums
amounted to DM4.3 billion ($2.4 billion) split between life/health 63% and
nonlife 37%.
    -- Capitalization of the Nuernberger Group is very strong, covering two
times (x) Standard & Poor's risk-based capital requirements at year-end 1997.
    -- Operating performance of the Group's nonlife operations has been very
strong, but is offset by less impressive earnings from life insurance. NAV's
return on revenue averaged an impressive 10.1% per year between 1992 and 1997.
Performance benefits from consistently positive underwriting results, as
evidenced by an average combined ratio of 95.6% for the years 1992-1997.
    -- NAV and its subsidiaries have been able to establish a sound niche
position in the highly fragmented German motor market, mainly attributable to
the companies' close relationship with the German car dealer association. In
1997, car dealers generated about 50% of total premium income. However, this
distribution channel might be threatened as some of the larger insurance
players have started to link up directly with car manufacturers. As a result,
NAV may no longer be able to forge partnerships with car dealers, where
manufacturers have signed contracts with other insurance companies.
    -- The affiliation with the car dealer association has naturally led to a
very high concentration in motor insurance (1997:62.5% of premium income). The
Nuernberger Group's nonlife operations therefore lack diversification and are
exposed to a line of business, which is affected by aggressive pricing as some
of the larger players attempt to regain market share.
    OUTLOOK: STABLE
    -- Group capitalization will remain very strong.
    -- Standard & Poor's will carefully monitor any possible regulatory
changes with regard to licensing of part-time agents, as these may represent
an immediate threat to NAV's most important distribution channel.
    -- In the medium term, NAV will continue to outperform peers, although
long-term profitability may decline, depending on the state of competition in
the German motor market.
    -- NAV will find it difficult to significantly increase its share in the
German motor market, Standard & Poor's said. -- CreditWire