OREANDA-NEWS. Fitch Ratings has affirmed Swiss reinsurer SIGNAL IDUNA Rueckversicherungs AG's (SI Re) Insurer Financial Strength (IFS) rating at 'A-'. The Outlook is Stable.

KEY RATING DRIVERS

The rating reflects the benefits of SI Re's ownership by IDUNA Vereinigte Lebensversicherung aG fuer Handwerk, Handel und Gewerbe Group (IL group), which is reflected in a two-notch uplift to its standalone assessment of 'BBB'. Fitch views SI Re as "very important" to IL group under the agency's group rating methodology.

The standalone rating reflects SI Re's strong capitalisation and sound underwriting practices. Offsetting factors include SI Re's small size and heightened operational risks, mainly emanating from its dependence on a small number of key staff.

Fitch believes SI Re is an integral part of IL group. SI Re benefits from organisational and IT support from the parent company, and from the group's relationship with European mutuals, which form the mainstay of SI Re's customer base. Moreover, 40% of SI Re's premiums in 2015 were related to the inter-group reinsurance programme.

Fitch views SI Re's capitalisation as strong. This is supported by SI Re's "extremely strong" score by Prism Factor Based Model at end-2015 and its Swiss Solvency Test margin of 247% (2014: 272%).

In 2015, SI Re achieved a combined ratio of 98.5%, improved from 99.3% in 2014. SI Re has maintained its combined ratios below 100% in the last six years, reflecting its sound underwriting practices. Fitch believes that SI Re's strong combined ratios were not achieved at the expense of imprudent reserve setting and we expect SI Re to continue its solid underwriting result in 2016.

With total capital of EUR141m (2014: EUR140m) and gross written premiums (GWP) of EUR120m in 2015 (2014: EUR130m), SI Re is a very small player in the reinsurance market. SI Re's GWP declined in 2015 due to the restructuring of two major reinsurance contracts. However, SI Re was able to compensate this decrease in the 2016 renewals. We expect that SI Re will maintain its premium level despite the continuing soft-market phase in the reinsurance market.

IL group's bottom-line profitability decreased in 2015 driven by a lower underwriting result in both the life and non-life segment. In the non-life segment, IL group achieved a combined ratio of 100.9% in 2015, a deterioration from the 97.5% reported for 2014, but slightly better than the group's five-year average of 101.3%. The result in the life segment was negatively affected by an additional reserving requirement introduced by the German regulator due to consistent low interest rates (Zinszusatzreserve). This costs IL group EUR354m in 2015 compared with EUR299m in 2014.

IL group is a part of the German SIGNAL IDUNA group, which is headed by four mutual insurance companies. In 2015, the SIGNAL IDUNA group had total GWP of EUR5.6bn, total assets of EUR52.3bn and employed 8,500 staff.

RATING SENSITIVITIES

Rating triggers for a downgrade include a diminishing of SI Re's strategic importance to IL group in Fitch's view and deterioration of the parent's credit quality, in particular through a significant decrease in capitalisation. Any significant weakening of SI Re's credit profile, for example, as reflected in a Swiss Solvency Test result below 200%, could also lead to a downgrade, although Fitch views this as unlikely.

Rating triggers for an upgrade include SI Re becoming "core" to IL group in Fitch's view or a substantial and sustainable improvement in IL group's financial profile. However, Fitch views an upgrade of SI Re as unlikely in the near to medium term.