UNIQA Insurance Group

UNIQA Insurance Group Primary Credit Analyst: Jean Paul Huby Klein, Frankfurt (49) 69-33-999-198; [email protected] Secondary Contacts: ...
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UNIQA Insurance Group Primary Credit Analyst: Jean Paul Huby Klein, Frankfurt (49) 69-33-999-198; [email protected] Secondary Contacts: Johannes Bender, Frankfurt (49) 69-33-999-196; [email protected] Jure Kimovec, FRM, ERP, Frankfurt (49) 69-33-999-190; [email protected] Analytical Group Contact: Insurance Ratings Europe; [email protected]

Table Of Contents Rationale Outlook Base-Case Scenario Company Description Business Risk Profile Financial Risk Profile Other Assessments Accounting Considerations Related Criteria And Research

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MAY 31, 2016 1 1645920 | 302219764

UNIQA Insurance Group SACP* Assessments

Anchor

a

+

Modifiers

SACP*

0

=

Support

+

a

Ratings

=

0

Financial Strength Rating

A/Stable/-Business Risk

Strong

ERM and Management

0

Liquidity

0

Group Support

0 Holding Company Rating

Financial Risk

Strong

Holistic Analysis

0

Sovereign Risk

0

Gov't Support

0

A-/Stable/--

*Stand-alone credit profile. See Ratings Detail for a complete list of rated entities and ratings covered by this report.

Rationale Business Risk Profile: Strong • UNIQA has a strong competitive position as one of the market leaders in its domestic Austrian insurance sector. • Slightly improving earnings contribution from the Central and Eastern European region, although the regional strength of its franchise, including performance, is still lagging other regional peers. • Challenges in the Austria life business as low interest rates are hampering profitability in the sector. • Diversification of business lines is a positive rating factor.

Financial Risk Profile: Strong • S&P Global Ratings assesses UNIQA's capital and earnings as strong, and we expect them to remain at that level. • We expect the group's capital adequacy to remain very strong, above the 'AA' level in 2016-2018. In our view, restructuring and investments into digitalization will not materially affect the group's capital adequacy. • Quality of capital is somewhat lower because soft capital components as a proportion of total adjusted capital (TAC) are still significant. • We assess the risk position as intermediate, based on the group's conservative investment portfolio.

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UNIQA Insurance Group

Other Factors • The combination of our view on UNIQA's business and financial profiles leads to an anchor (the starting point in assigning a counterparty credit rating) of either 'a' or 'a-'. We use the 'a' anchor, based on our assumption of continued strengthening of capital and earnings and the group's strong market position in Austria.

Factors Specific To The Holding Company • We apply a one-notch differential between UNIQA Insurance Group AG and its operating subsidiaries, reflecting the structural subordination to UNIQA's policyholders. We do not use the standard two-notch differential because the holding company generates its own revenues from internal reinsurance activities for the Austrian insurance subsidiaries (although these are strongly decreasing). Also, it is a regulated entity and, as such, we regard it as an operating holding company. Additionally, the majority of the central functions and staff are at the holding level rather than within the operating entities. The holding company also has some flexibility to fulfill its financial obligations through excess capital at the holding level.

Outlook: Stable The stable outlook on Austrian multiline insurer Uniqa Insurance Group (UNIQA) reflects our view that the group will sustain its strong competitive position in its home market and continue to improve its position in Central and Eastern Europe (CEE). We think UNIQA's earnings will support at least very strong capital adequacy, despite needs arising from business growth and dividend payments.

Downside scenario We might consider lowering the ratings over the next 24 months if UNIQA's: • Competitive position considerably deteriorated in its domestic market; • Capital adequacy fell below the expected 'AA' level for a prolonged period; • We observe weakening in underwriting or considerable re-risking of the investment portfolio that could lead to a negative impact on bottom-line earnings; or • UNIQA's financial flexibility deteriorates to less than adequate. This could result if we believe fixed charge coverage is likely to be below 4x for a prolonged period, owing to lower earnings than in our base case or higher refinancing costs.

Upside scenario We see a positive rating action as a remote possibility in the next two years because we do not expect that the group will materially enhance its competitive position by achieving substantial earnings diversity outside of Austria.

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UNIQA Insurance Group

Base-Case Scenario Macroeconomic Assumptions • Low unemployment rates in Austria of 6.1% in 2016 and 6.3% in 2017. • Credit market conditions to remain eased in the eurozone, with real GDP growth of 1.5% in 2016 and 1.6% in 2017. • The Austrian 10-year government yield, currently at 0.4%, will remain low over the next two years. • Economic growth in the CEE region to remain stronger than in the eurozone, leading to some organic growth. Company-Specific Assumptions • Capital adequacy will remain in the 'AA' range. • The company posting combined (loss and expense) ratios of around 98% in 2016, thereafter improving toward 96%. • Net income in 2016 to decline to below €200 million due to restructuring costs. Afterwards, we expect net income to again exceed €230 million annually. This should support return on equity (ROE) of 5%-8% in 2016–2017. • Decline in investment income through to 2016, reflecting the low-yield interest environment. • A life/health new business margin of around 2%. • Fixed-charge coverage of 4x-8x and financial leverage at less than 20% in 2016-2017. Key Metrics

Gross premium written (mil. €) Net income (mil. €) Return on shareholders' equity (%) P/C net combined ratio (%) *** Life new business margin (%) Net investment yield (%)

2017F

2016F

2015

2014

2013

~6.200

~6.000

6,325

6,064

5,886

>230