OREANDA-NEWS. Fitch Ratings has downgraded Stuttgarter Lebensversicherung a.G.'s (SLV) and VOLKSWOHLBUND LEBENSVERSICHERUNG a.G.'s (VBL) Insurer Financial Strength (IFS) ratings to 'A' from 'A+'. The Outlook of SLV is Stable, while that on VBL is Negative.

At the same time, the agency has affirmed the IFS ratings of ALTE LEIPZIGER Lebensversicherung auf Gegenseitigkeit (AL), Lebensversicherung von 1871 a. G. Muenchen's (LV) and Nuernberger Lebensversicherung AG (NLV) at 'A+'. The Outlook on the IFS ratings of AL and NLV is Stable, while the Outlook on LV is Negative.

A full list of rating actions is available at the end of this commentary.

KEY RATING DRIVERS
The rating actions follow a peer analysis of German life insurance groups and especially the risks posed by asset and liability management (ALM) exposures. Fitch believes ALM-related risks have become more significant in a continuing low interest rate environment.

Fitch gave particular consideration to the companies' duration gaps, their projected performance in low interest rate scenarios and results from applying Fitch's Prism factor based capital model (Prism FBM). For the purpose of this review, and in addition to other measures, Fitch used the duration gap ranges as follows: under 0.5 years at 'AAA'; 0.5 to 1.5 years at 'AA'; 1.5 to 3 years at 'A'; 3 to 5 years at 'BBB'; and over 5 years at speculative-grade. The weighting of the various measures and analysis in arriving at Fitch's overall view on ALM varies by issuer.

Fitch has updated the ALM scores in its Rating Navigator, a tool for summarising its assessment of the various credit factors in its analysis, as follows: AL: revised down to 'BBB' from 'A'; LV: maintained at 'A-'; NLV: revised down to 'A-' from 'A'; SLV: revised down to 'BBB' from 'A'; and VBL: revised down to 'BB' from 'BBB+'. These changes, together with other credit factors, contributed to today's downgrades for SLV and VBL and affirmations for AL, LV and NLV.

RATING SENSITIVITIES
AL
An upgrade in the near- to medium-term is unlikely unless the group increases its size/scale and improves diversification, while maintaining strong capitalisation.

Key triggers for a downgrade include a depleted capital position (as evidenced, for example, by the Prism FBM score falling to 'strong' from 'extremely strong' and expected to stay at that level) and a loss of the group's strong position in the disability and corporate pension scheme markets.

LV
An upgrade of the rating is unlikely in the near- to medium-term, given the difficult operating environment for German life insurers.

Key triggers for a downgrade include an expectation from Fitch that reinvestment rates for fixed income investments will be below LV's average liability guarantee rate on a sustained basis, a weakening of the group's Prism FBM score to 'strong' from 'very strong' for a sustained period or deterioration in LV's strong franchise.

NLV
An upgrade of the ratings is unlikely in the short- to medium-term unless the group increases its size/scale and improves diversification, while maintaining 'very strong' capitalisation based on Prism FBM.

Weak overall profitability over a period of time, as indicated for example by a return on equity below 6%, and/or sustained material erosion in capital, for example, to a level of below 'strong' from 'very strong' in Fitch's Prism FBM capital assessment could lead to a downgrade.

SLV
An upgrade of the rating is unlikely in the near- to medium-term, given the difficult operating environment for German life insurers.

Key ratings triggers for a downgrade include capitalisation declining to 'strong' from 'very strong' in Fitch's Prism FBM capital assessment or a sustained weakening in profitability, resulting in a return on equity below 8% (on a consolidated basis) over a sustained period.

VBL
An upgrade of the rating is unlikely in the near- to medium-term, given the difficult operating environment for German life insurers.

Key rating triggers for a downgrade include deterioration in VBL's capital position as evidenced, for example, by the Prism FBM score falling to 'strong' from 'very strong', and a weakened market position as evidenced, for example, by a significant decline in gross written premiums.

FULL LIST OF RATING ACTIONS

ALTE LEIPZIGER Lebensversicherung auf Gegenseitigkeit affirmed at IFS 'A+'; Stable Outlook
ALTE LEIPZIGER Versicherung Aktiengesellschaft affirmed at IFS 'A+'; Stable Outlook

Lebensversicherung von 1871 a. G. Muenchen affirmed at IFS 'A+', Negative Outlook.

Nuernberger Lebensversicherung AG affirmed at IFS 'A+'; Stable Outlook
Nuernberger Allgemeine Versicherung AG affirmed at IFS 'A+'; Stable Outlook
Nuernberger Krankenversicherung AG affirmed at IFS 'A+'; Stable Outlook
Nuernberger Beteiligungs-Aktiengesellschaft affirmed at Issuer Default Rating (IDR) 'A'; Stable Outlook

Stuttgarter Lebensversicherung a.G. downgraded to IFS 'A' from 'A+'; Stable Outlook

VOLKSWOHLBUND LEBENSVERSICHERUNG a.G. downgraded to IFS 'A' from 'A+'; Negative Outlook