Fitch Ratings has today affirmed HDI-Gerling Lebensversicherung AG's ("HG-LV") Insurer Financial Strength ("IFS") rating at 'A-' (A minus) and Long-term Issuer Default Rating ("IDR") at 'BBB+'.
Fitch has also affirmed HG-LV's subordinated debt at 'BBB'. The Outlooks for the IFS rating and IDR are Stable. Fitch has again awarded HG-LV the Financial-Strength-Seal, which is only given to financially strong insurers. The rating reflects HG-LV's important role as the principal primary life insurer of its parent company, Talanx group ("Talanx"). HG-LV's strong franchise is reflected by its ninth position in terms of gross written premiums ("GWP") in the German life insurance market and a diversified distribution approach with significant new business generated via exclusive distribution forces and IFAs. In 2006 HG-LV increased its sum of total premiums for new business to EUR4.8bn from EUR3.7bn in 2005. In H1 2007 this positive trend continued with a 14.6% increase of premiums for new business to EUR150.9m. Offsetting factors are HG-LV's moderate capitalisation, which is below the assigned rating level, and gross earnings, which are below the market average, constrained by past balance-sheet management actions. "Capitalisation has weakened over the course of 2006 due to rising interest rates and, since 2003, a constantly decreasing free fund for future appropriation (freie Ruckstellung fur Beitragsruckerstattung)", says Tim Ockenga, Director in Fitch's European insurance team. "This view is mirrored by the capital score of PRISM, the recently introduced stochastic capital model of Fitch." In 2006 HG-LV reported GWP of EUR2bn, total assets of EUR20.6bn and had 1,385 employees at end-2006. HG-LV reported a net income of EUR31m, which represents a respectable return on average book equity of 16.9% in 2006 (2005: 17.4%). HG-LV was able to report this return despite sub-standard gross earnings as its profit participation rate of 89% fell short of the market average. Furthermore, a comparably weak equity position of EUR188.1m stands against technical reserves of EUR17.5bn. In 2005 HG-LV issued EUR160m of subordinated perpetual debt. This issue has a fixed coupon of 6.75% for the first 10 years with a step-up clause to a floating interest rate thereafter. The notes are callable after 10 years and at any floating interest payment date thereafter. Under Fitch's criteria these subordinated unsecured notes receive equity credit of 50%. Following the acquisition of Gerling good progress in the integration of HG-LV into Talanx can be attested. Following the consolidation of major sites to Cologne further uncertainties have been resolved and staff fluctuation is expected to normalise. Talanx AG is the third-largest insurance group in Germany with GWP of EUR19.4bn, total assets of EUR92.9bn and about 16,600 employees worldwide at end-2006. Following the acquisition of the Gerling group by Talanx AG, HDI Lebensversicherung AG and Gerling-Konzern Lebensversicherungs-AG were merged in October 2006 to become HG-LV. This newly formed company is situated under HDI-Gerling Leben Serviceholding AG, which is 100%-owned by Talanx. In 2006 HG-LV formed a significant part of Talanx accounting for 22% of assets and 10% of GWP.