S&P Affrms Rtgs on Nuernberger Group; Outlook Stable
21 December 2000
S&P Affrms Rtgs on Nuernberger Group; Outlook Stable
LONDON--Standard & Poor's--Dec. 21, 2000--On Monday, Dec. 18, 2000, Standard & Poor's affirmed the single-'A'-plus counterparty credit and insurer financial strength ratings on Nuernberger Allgemeine Versicherungs-AG (Nuernberger Allgemeine) and Nuernberger Lebensversicherung AG (Nuernberger Leben), the core entities of the Nuernberger group.The ratings are based on the group's very strong capitalization; a strong and specialized franchise in the German private lines and small business insurance markets; and strong but weakening operating performance, which is mainly driven by Nuernberger Allgemeine. Partially offsetting these strengths are the group's concentration on German motor insurance, a sector that is expected to remain highly competitive, and the overall unimpressive operating efficiency of the group, as demonstrated by high expense ratios. The outlook is stable.
Major rating factors:
| -- | Capitalization is very strong, with a capital adequacy ratio of over 180% at year-end 1999, based on Standard & Poor's capital model. The group has a strong equity base, which has consistently grown through retained earnings, a high level of unrealized capital gains in its investment portfolio, and a conservative reserve position in the nonlife business. |
| -- | Both life and nonlife insurance are core to the Nuernberger group's strategy. At year-end 1999, the group's written gross premiums totaled DM4.7 billion (Eur2.4 billion), with 65% attributable to life/health premiums and 35% to nonlife premiums. Nonlife premiums have been gradually decreasing in recent years because of fierce competition in the motor business, which comprises about 60% of the group's nonlife portfolio. The group's life insurance business, however, grew substantially, partly driven by the potential prospect of a less favorable tax regime for policyholders, and, in particular, by the group's successful specialization in the booming unit-linked business, where the Nuernberger group ranks number two in the German market. |
| -- | The group benefits from a strong franchise, both in life and nonlife insurance. Through its subsidiary, Garanta Versicherungs-AG, Nuernberger Allgemeine has established a niche position in the highly fragmented German motor market. This is mainly attributable to the company's longstanding, close relationship with the German car dealer association and its members, providing strong and widespread distribution capabilities. This relationship also provides good cross-selling potential. |
| -- | Nuernberger Leben derives competitive strengths from its ability to differentiate itself through an innovative product range, which has been well received by its multidistribution channels. Based on its solid position in the traditional life insurance market, the company has successfully developed a specialization in the unit-linked and disability insurance businesses, and is one of the market leaders in these areas. |
| -- | Return on equity for the group fell in 1999 to 10.0% from 10.4%, which, in light of the competitive situation in the German market, is still a satisfactory result. Although gradually weakening, the operating performance of the group's nonlife operations has been strong in recent years, but is partially offset by less impressive earnings from the life insurance operation. The nonlife performance benefits from consistently positive underwriting results, demonstrating its niche strength. Life profitability is affected by relatively high expense and lapse ratios, which reflect the high proportion of new business and investment in advanced IT. |
OUTLOOK: STABLE
Despite growing competition, the Nuernberger group will continue to show strong sales for its life and savings products, maintain its stable franchise in the German motor market, and benefit from cross-selling. Capital adequacy will remain very strong, but decrease because of growth. Overall profitability is expected to remain stable in 2000, but improve in 2001, Standard & Poor's said.--CreditWire