Best’s News & Research Service - May 21, 2015 01:20 PM (EDT)
A.M. Best Affirms Ratings of HDI Haftpflichtverband der Deutschen Industrie V.a.G and Talanx AG
- May 21, 2015 01:20 PM (EDT)
London //BestWire// - A.M. Best has affirmed the financial strength rating (FSR) of A (Excellent) and the issuer credit ratings (ICR) of "a+" of HDI Haftpflichtverband der Deutschen Industrie V.a.G. (HDI V.a.G.) (Germany), the ultimate operating mutual parent company of Talanx AG (Germany), and its various insurance subsidiaries. Concurrently, A.M. Best has affirmed the ICR of "a-" of Talanx AG, the intermediate holding company for all HDI V.a.G. companies (collectively referred to as the Talanx Group). Additionally, the ratings of the main operating subsidiaries of the group, as well as debt instruments guaranteed by Talanx AG, have been affirmed. The outlook for all ratings is stable. (Please see below for a detailed listing of the companies and ratings.)
The ratings reflect the Talanx Group's strong consolidated risk-adjusted capitalisation, solid operating performance and strong business profile within its core European life and non-life markets.
Talanx's strong consolidated risk-adjusted capitalisation is supported by a good level of retained earnings and soft capital components, including unrealised investment gains, the value of life in-force business (an embedded value concept) and hybrid debt. The group targets a dividend pay-out ratio of between 35% and 45% of net income. This should allow consolidated risk-adjusted capitalisation to be maintained at an adequate level to sustain the group's prospective business growth strategy.
Talanx's solid operating performance in recent years has been underpinned by the strong results of the Reinsurance divisions. This has offset deterioration in the performance of the group's primary non-life companies, which has been affected by a high number of large losses in the Industrial Lines division and reserve strengthening in the domestic segment. The life business of the Retail Germany account has also been negatively affected by the requirement to establish an additional reserve buffer, known as Zinszusatzreserve, which is a regulatory reserve that insurers must hold in German GAAP against life products offering high investment guarantees, as well as the write-down in the value of domestic life in-force business, as a result of the decline in interest rates in 2014. The domestic life segment is expected to remain under pressure from the low interest rates.
With a gross premium income of EUR 29 billion in 2014, Talanx AG maintains a good business profile that is broadly diversified between primary (life and non-life) and reinsurance operations and enhanced by its strong competitive position within the German industrial and international reinsurance markets. Going forward, A.M. Best expects growth in premium volumes to be tempered by the Retail Germany division, owing to reduced demand for life insurance products as a result of the uncertain economic climate and low interest rates, along with the intensely competitive conditions in the global reinsurance market.
A.M. Best believes that the Talanx group is well-positioned at its current rating level. Nonetheless, positive rating actions could occur if there were a material and sustained improvement in the performance of the Retail Germany segment. Additionally, should the Reinsurance divisions produce results that exceed that of peers, this could result in upwards rating movement.
Downward rating movement could be triggered by a material reduction in Talanx's consolidated risk-adjusted capitalisation due to a higher than expected level of large claims or retained losses arising from the life portfolio.
The FSR of A (Excellent) and the ICRs of "a+" have been affirmed for the following HDI Haftpflichtverband der Deutschen Industrie V.a.G. subsidiaries:
- HDI-Gerling Industrie Versicherung AG
- HDI-Gerling Welt Service AG
- HDI Lebensversicherung AG
The debt ratings have been affirmed at "bbb+" for the following:
Talanx Finanz (Luxembourg) S.A.—
— EUR 500 million 8.367% subordinated fixed to floating rate notes, due 2042
— EUR 350 million 4.5% subordinated fixed to floating rate notes, due 2025
The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilised:
- Analyzing Insurance Holding Company Liquidity
- Catastrophe Analysis in A.M. Best Ratings
- Equity Credit for Hybrid Securities
- Insurance Holding Company and Debt Ratings
- Rating Members of Insurance Groups
- Risk Management and the Rating Process for Insurance Companies
- Understanding Universal BCAR
In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: A.M. Best Europe - Rating Services Limited Supplementary Disclosure.
This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best's Ratings & Criteria Center .
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