R+V Versicherung AG Primary Credit Analyst: Silke Longoni, Frankfurt (49) 69-33-999-195;
[email protected] Secondary Contact: Ralf Bender, CFA, Frankfurt (49) 69-33-999-194;
[email protected]
Table Of Contents Major Rating Factors Rationale Outlook Related Criteria And Research
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R+V Versicherung AG Please note that the ratings covered by this full analysis apply only to R+V Versicherung AG and KRAVAG-LOGISTIC Versicherungs AG.
Major Rating Factors Strengths:
Counterparty Credit Rating
• Intrinsic part of DZ BANK and the German cooperative banking sector. • Successful bancassurance model in Germany.
Local Currency AA-/Stable/--
Weaknesses: • Overproportional business growth, which somewhat strains otherwise strong group capitalization. • Declining operating performance because of worldwide natural catastrophes, from which the reinsurance segment has suffered.
Rationale The ratings on Germany-based reinsurer, R+V Versicherung AG (RVV) reflect Standard & Poor's Ratings Services' view of RVV's intrinsic role as the holding and reinsurance company of the Germany-based R+V insurance group (R+V). R+V in turn forms a core operation of its majority shareholder DZ BANK AG Deutsche Zentral-Genossenschaftsbank (DZ BANK; AA-/Stable/A-1+) and of the German cooperative banking sector. We consider R+V's successful bancassurance model in Germany as a key factor supporting the ratings. Partially offsetting this in our view are RVV's overproportional business growth, which somewhat strains the otherwise strong group capitalization, and a decline in operating performance. R+V is DZ BANK's insurance franchise and, through its main primary insurance operations, R+V Allgemeine Versicherung AG and R+V Lebensversicherung AG (both unrated), services clients of the cooperative banking sector and other cooperative organizations in Germany. Accordingly, we consider R+V as "core" to DZ BANK and the cooperative banking sector under our bank group methodology criteria. R+V maintains a strong competitive position, in our opinion. In particular, we consider R+V's successful bancassurance model in Germany to be a key strength. The company holds a top-five market position in Germany. It continues to post strong growth figures that benefit from a diverse business profile and a clear focus on the bancassurance market, complemented by a foothold in the German broker market. We continue to regard KRAVAG-LOGISTIC Versicherungs AG (KLog; AA-/Stable/--) as a "core" entity, because it is the insurance group's dedicated carrier for its business relations with the German road haulage segment, which is dominated by cooperatives. The ratings on RVV significantly reflect the core position of R+V for the cooperative banking group. They also reflect RVV's role as operating holding and reinsurance company of R+V. RVV is the group's internal reinsurer, but also
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underwrites a sizable portion of third-party reinsurance, mainly from small and midsize insurers. RVV receives steady cash flows stemming from profit transfer agreements with its primary insurance subsidiaries, but also from significant own assets, which are partially related to its reinsurance activities. Our assessment also reflects that RVV has no debt on its balance sheet. Consequently, we maintain a zero-notch gap between the ratings on RVV and our assessment of R+V's overall financial strength. RVV's third-party reinsurance business provides the R+V group with the potential for international diversification. However, the rapid expansion in this segment in recent years--which we consider nonstrategic to the cooperative banking sector--puts further pressure on capitalization, in our view. In 2011 this segment's gross premiums written showed an increase of 10% to €1.2 billion, contributing about 10% to the group's total premiums. However, we believe that the group's expansion into a potentially volatile reinsurance market is changing its risk profile, as reflected in the losses experienced in 2011. We view the group's capitalization as strong although strained by the comparably high above-average business growth. The strong premium growth in past years implies higher asset-and-liability capital requirements, whereas the group's earnings did not allow a corresponding development of the capital base. In our base-case scenario, we do not anticipate that this will change in 2012 but still expect capitalization to remain strong. We assess operating performance as good and consistent with its core status. We nevertheless consider it a relative weakness for the ratings. The group's net income declined to €181 million in 2011, from €261 million in 2010, translating into a return on equity (ROE) of about 5% against a five-year average of 7.5%. However, this decrease was largely due to lower investment income on the back of higher realized and unrealized losses in life and non-life insurance. Additionally, the reinsurance segment suffered significantly under worldwide natural catastrophes in 2011, resulting in a negative return. However, the segment's past underwriting performance has been sound, supported by steadily strengthening reserves. In our base case, we therefore expect he reinsurance segment to recover to more normal operating performance in 2012 and 2013. Conversely, the non-life underwriting performance has improved. This was reflected by the decrease of the net combined ratio for primary and reinsurance business to 104% in 2011, compared with 105% in 2010 (five-year average of 104%). The combined ratio is the industry's leading underwriting profitability metric. The lower the combined ratio, the more profitable, and a ratio of more than 100% signifies an underwriting loss. Furthermore R+V benefits from strong reserving for its non-life business. We expect the group's non-life operating performance to improve further, reflected in a net combined ratio of 101% in 2012 and 2013. In the life insurance segment, favorable new business margins (based on market-consistent embedded-value approach) lead to strong gross profitability. The new business margin accounted for approximately 30% of the annual premium equivalent (APE). This, in our view, reflects the transition to products that are less interest rate-sensitive as well as a high proportion of single premium business. Under new regulations that came into effect in 2011, German life insurers have been required to build an additional reserve ("Zinszusatzreserve" or ZZR), owing to the currently low interest environment. In our base-case scenario, we expect low bond yields and the resulting additional ZZR reserving
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requirements to lead to slightly decreasing gross surpluses for the life segment. However, the life new-business margin will likely be about 20% in 2012 and 2013. We acknowledge that the group's strategic role within the cooperative sector implies a lower emphasis on bottom-line profitability. Nonetheless, we believe that R+V's operating performance has declined to a degree that constrains its ability to build capitalization in line with its growth ambitions. Under our base case we do not expect earnings to recover materially in 2012. Consequently, we forecast R+V's total bottom-line profitability will remain at the current levels, resulting in a ROE of 6%-8% in 2012.
Outlook The stable outlook on RVV reflects that on DZ BANK. We expect RVV to remain an intrinsic part of DZ BANK and that KLog will remain a core subsidiary of RVV owing to the support it provides to the cooperative banking sector's business generation and profitability. Rating downside for RVV could result from a negative rating action on DZ BANK, which we consider unlikely at present. It could also arise in the unlikely event that R+V's credit profile deteriorated to an extent that could raise concerns about its intrinsic role with the cooperative sector. Rating upside could follow a positive rating action on DZ BANK, which we also consider unlikely at this stage.
Related Criteria And Research • • • • • •
Interactive Ratings Methodology, April 22, 2009 Use Of CreditWatch And Outlooks, Sept. 14, 2009 Group Rating Methodology And Assumptions, Nov. 9, 2011 Assumptions For Quantitative Metrics Used In Rating Insurers Globally, April 14, 2011 Principles Of Credit Ratings, Feb. 16, 2011 Refined Methodology And Assumptions For Analyzing Insurer Capital Adequacy Using The Risk-Based Insurance Capital Model, June 7, 2010 • Counterparty Credit Ratings And The Credit Framework, April 14, 2004 Ratings Detail (As Of September 5, 2012) R+V Versicherung AG Financial Strength Rating Local Currency
AA-/Stable/--
Counterparty Credit Rating Local Currency
AA-/Stable/--
Counterparty Credit Ratings History 05-Dec-2011
Local Currency
AA-/Stable/--
01-Aug-2005
A+/Stable/--
24-Aug-2004
A/Stable/--
*Unless otherwise noted, all ratings in this report are global scale ratings. Standard & Poor's credit ratings on the global scale are comparable across countries. Standard & Poor's credit ratings on a national scale are relative to obligors or obligations within that specific country.
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Additional Contact: Insurance Ratings Europe;
[email protected]
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