OREANDA-NEWS. Fitch Ratings has affirmed German life insurer Lebensversicherung von 1871 a. G. Muenchen's (LV 1871) Insurer Financial Strength (IFS) rating at 'A+' with a Stable Outlook.

KEY RATING DRIVERS
The rating reflects LV 1871's strong market position in German disability insurance and its solid capitalisation. Fitch's view on the company's capitalisation is based on both the level of the regulatory solvency ratio and the agency's own internal risk-based measures. These factors are offset by a fairly high risky assets ratio, the current difficult environment for German life insurers and the small size of the company, which limits diversification.

LV 1871 has a top 10 position in Germany's disability market. Due to a large proportion of disability business underwritten by LV 1871, the company is well positioned to mitigate the impact of low yields. This is because LV 1871's underwriting earnings from its disability business would help the company to meet guaranteed interest rate payments for traditional German business, which Fitch views positively.

LV 1871 scored 'very strong' in Fitch's Prism factor-based model (Prism FBM) based on end-2013 financials. Fitch expects LV 1871 to have maintained this score at end-2014. LV 1871's group regulatory solvency margin was 175% at end-2013 and we expect it to have been stable at end-2014, which also supports Fitch's view on capitalisation.

LV 1871 had a risky asset ratio of 130% at end-2013, which Fitch considers as high for the rating. The risky asset ratio is a measure of total high-risk investments (below investment grade bonds, equities and affiliated investments) as a share of available capital funds (excluding off balance sheet unrealised capital gains). However, as a percentage of total investments, these investments were only 9.4% at end-2013. Fitch does not expect a significant increase in the risky asset ratio for 2014.

We expect LV 1871 to have had a stable net investment return of 4.4% in 2014, and to have remained less than the German life sector average (2013: 4.7%). We expect a fairly stable investment return 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.

LV 1871's investment income was more than sufficient to meet the guarantees and Zinszusatzreserve costs in 2014. In 2014, LV 1871's reinvestment rate on fixed-income investments was in line with its average guaranteed interest rate.

LV 1871 is a Munich-based mutual life insurer that directly owns 100% of the insurance companies: LV 1871 Private Assurance AG, LV 1871 Pensionsfonds AG, Delta Direkt Lebensversicherung AG and TRIAS Versicherung AG. The consolidated group reported preliminary gross written premiums of EUR826m for 2014. LV 1871 distributes its products through a network of around 9,200 distribution agreements with sales organisations, IFAs, and banks.

RATING SENSITIVITIES
Key triggers for a downgrade include an increase in the risky asset ratio to more than 150%, a decline in LV 1871's strong franchise in the disability line or a weakening of the group's Prism FBM score to 'strong' for a sustained period.

Fitch views an upgrade as unlikely in the near term due to LV 1871's relatively small size and limited diversification, and hence its vulnerability to external effects.