Three German insurers see outlooks revised to negative in light of COVID-19 pandemic

Written by Adam Cadle

19/05/2020

Three German insurance groups have had their outlooks revised to negative in light of the COVID-19 pandemic, Fitch Ratings has said.

The three groups, Provinzial NordWest Lebensversicherung Aktiengesellschaft's and Westfaelische Provinzial Versicherung; R+V Allgemeine Versicherung, R+V Lebensversicherung, R+V Lebensversicherung and Condor Lebensversicherungs-Aktiengesellschaft's; Stuttgarter Lebensversicherung, all saw a revision to their outlooks based on Fitch’s assessment of the impact of the coronavirus pandemic under a set of ratings assumptions. These assumptions were used to develop pro-forma financial metrics for a total of ten insurance groups, which Fitch compared with the ratings guidelines defined in its Insurance Rating Criteria, and with previously established rating sensitivities for the respective insurers.

For the other seven insurance groups, the Insurer Financial Strength (IFS) ratings were affirmed with stable outlooks.

Fitch expects financial market disruptions to negatively affect the sector's financial performance, especially via increased pressure on investment yields and interest margins and reduced fee income due to lower asset balances.

“The further decline in market interest rates makes it increasingly difficult to cover existing policyholders' guarantees solely from investment income,” Fitch said. It estimated that the average effective guarantee on German life reserves was about 1.8% at end-2019, and “while this is similar to an average running yield of 2.4% on the investment side, the average yield of the investment portfolio comes down more quickly than the average guarantee, due to the existing asset-liability duration mismatch”.

The ultimate implications of the pandemic on German insurers' credit profiles are unclear, but Fitch considers the risks to be skewed to the downside. The ratings are under pressure, and could be downgraded if the economic and financial market disruption arising from the pandemic places sustained pressure on the insurers' financial profiles, in particular on their capitalisation and earnings.

The insurance groups with stable outlooks are as follows:

- Allianz SE and main subsidiaries'
- ALTE LEIPZIGER Lebensversicherung auf Gegenseitigkeit and ALTE LEIPZIGER Versicherung Aktiengesellschaft
- DEVK Deutsche Eisenbahn Versicherung Sach- und HUK-Versicherungsverein a.G. Betriebliche Sozialeinrichtung der Deutschen Bahn (DEVK P&C) and its main subsidiaries' and DEVK Deutsche Eisenbahn Versicherung Lebensversicherungsverein a.G. Betriebliche Sozialeinrichtung der Deutschen Bahn's (DEVK Life)
- Lebensversicherung von 1871 a. G. Muenchen's
- ERGO Vorsorge Lebensversicherung
- NUERNBERGER Lebensversicherung, NUERNBERGER Allgemeine Versicherung Aktiengesellschaft and NUERNBERGER Krankenversicherung
- VOLKSWOHL BUND LEBENSVERSICHERUNG

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