OREANDA-NEWS. Fitch Ratings has affirmed Munich Reinsurance Company's (Munich Re) Insurer Financial Strength (IFS) rating at 'AA' and Long-term Issuer Default Rating (IDR) at 'AA-'. These actions also apply to the ratings of core operating subsidiaries. The Outlooks are Stable. A full list of rating actions is at the end of this commentary.

KEY RATING DRIVERS
The affirmation reflects the strength of Munich Re's franchise and financial profile within the global reinsurance sector, a view that is supported by strong and consistent property and casualty (P&C) reinsurance results and very strong capitalisation. Fitch regards Munich Re's reinsurance operation as one of a very select group that has the scale, diversity and financial strength to attract the highest quality business being placed into the global reinsurance market. A marginally offsetting factor is the mixed performance of the reinsurer's ERGO-branded primary insurance operations.

Fitch expects P&C reinsurance earnings metrics will remain commensurate with a 'AA' rating in the next 12 to 18 months. The P&C reinsurance division achieved a better-than-target (95%) combined ratio of 93.4% for 9M15 (9M14: 93.2%), helped by lower than expected natural catastrophe claims. The agency expects that the P&C reinsurance segment will continue to account for a major part of the company's operating earnings in the foreseeable future.

Based on an assessment of capital and leverage metrics, Fitch regards Munich Re's capitalisation as very strong, and financial leverage as moderate. The reinsurer's IFRS equity is sensitive to interest-rate-induced movements in the market value of its fixed-interest investment portfolio. The agency believes that on an economic-value basis, this sensitivity would be reduced by offsetting movements in the value of liabilities. Munich Re's very strong capitalisation enables it to provide underwriting capacity on a continuous and large-scale basis, should it so wish.

The performance of Munich Re's ERGO-branded primary insurance businesses remains mixed, but Fitch expects the division's contribution to earnings to be more consistent in the medium term. Reported net income for 9M15 was stable and in line with Fitch's expectation, being EUR418m (9M14: EUR413m). The German primary life operations continue to face challenges related to high levels of interest guarantees, due to the persistence of low investment yields.

Fitch recognises that the current operating environment remains challenging for Munich Re and the wider (re)insurance industry. Persistently low interest rates and increasingly intense competition, especially in non-life reinsurance, continue to drive price softening across certain major reinsurance classes. The agency expects Munich Re's diversified business profile and prudent underwriting policy to provide resilience to a protracted period of price softening, should this occur.

RATING SENSITIVITIES
Munich Re has the joint-highest IFS rating among European (re)insurance groups and an upgrade is unlikely in the near-term.

The key rating triggers that could result in a downgrade include a sustained material drop in the company's risk-adjusted capital position to below 'very strong' as measured by Fitch's Prism factor-based capital model, a cross-cycle Fitch-calculated combined ratio of 97% or above, or significant underperformance relative to peers.

FULL LIST OF RATING ACTIONS

Munich Reinsurance Company:
IFS rating: affirmed at 'AA'; Outlook Stable
Long-term IDR: affirmed at 'AA-'; Outlook Stable
Subordinated debt: affirmed at 'A'
GBP300m subordinated debt (XS0167260529): affirmed at 'A+'

DKV Deutsche Krankenversicherung
IFS rating: affirmed at 'AA'; Outlook Stable

ERGO Lebensversicherung AG
IFS rating: affirmed at 'AA'; Outlook Stable

ERGO Versicherungsgruppe AG
Long-term IDR: affirmed at 'AA-'; Outlook Stable

Europaeische Reiseversicherung AG
IFS rating: affirmed at 'AA'; Outlook Stable

Munich Reinsurance America Corporation
Long-term IDR: affirmed at 'AA-'; Outlook Stable
Senior unsecured debt: affirmed at 'AA-'

VORSORGE Lebensversicherung AG
IFS rating: affirmed at 'AA'; Outlook Stable

The following Munich Re entities' IFS ratings have been affirmed at 'AA' with Stable Outlook:

Munich Reinsurance America, Inc.
Hartford Steam Boiler Inspection and Insurance Company

The following Munich Re entities' IFS ratings have been affirmed at 'A+' with Stable Outlook:

ERV Foersaekringsaktiebolag (publ)
Europaeiske Rejseforsikring A/S