Fitch Ratings has affirmed Luxemburg-based ATLANTICLUX Lebensversicherung S.A.’s (ATL) Insurer Financial Strength (IFS) rating at ‘BBB’, Long-term Issuer Default Rating (IDR) at ‘BBB-‘ and Value of Business In-Force (VIF)-linked notes at ‘BBB-‘. The Outlook on the IDR and IFS rating is Stable.
The affirmation reflects the life insurer’s low investment risk, its strong capital position and its solid performance in 2011. These positive rating factors are partly offset by ATL’s dependency on unit-linked products and its relatively small size.
The rating of ATL’s VIF-linked notes is dependent on the company’s credit quality as a whole, and as such has been set at the same level as the IDR.
ATL faces only limited direct investment risks as policyholders or other external parties that provide guarantees offered within ATL’s products carry the risk of falling equity markets. Fitch views positively that the remaining mortality and disability risk is largely reinsured.
Based on its risk-based capital assessment, the agency views ATL’s capitalisation as strong. This is also reflected in the company’s satisfactory regulatory solvency ratio of 164% (2010: 185%). The decrease in 2011 was driven by an acquisition of a book of business of French unit-linked policies. Fitch expects that ATL will be able to return to 2010 solvency levels within the next two or three years. ATL upstreams a moderate EUR620,000 of its total earnings to its parent companies, FWU AG and VHV, and an increase in dividends is not expected in the near term.
For 2011, ATL reported gross written premiums (GWP) of EUR114.9m (2010: EUR108.8m) and a net income of EUR1.9m (2010: EUR1.8m). Fitch views positively the fact that ATL was able to achieve a premium increase of 5.6% in 2011 after three consecutive years of stagnating premiums when the market showed a declining trend. Fitch will continue to follow ATL’s premium development closely as customer demand for unit-linked insurance products tends to decrease when uncertainty about capital markets increases. The agency also views positively the reduction in lapse risk as a result of ATL introducing a guarantee in 2008, provided by external parties, which secures any peak-value of a contract, payable only at its maturity.
Furthermore ATL’s earnings also depend on the market value of assets under management (AuM). Fitch notes positively that ATL was able to limit the decrease of the value of its AuM during the capital market turmoil in H211 to only around 5% by its active asset allocation within the policyholders’ investment funds.
Key ratings triggers for a downgrade include a significant and sustained deterioration in profitability resulting in a post-tax operating return on assets below 0.2%.
Key ratings triggers for an upgrade include continued improvements in the company’s franchise and scale and stability in the company’s GWP developments in its various markets, while maintaining strong capitalisation.
Luxemburg-based insurer ATL offers unit-linked and term insurance products, predominantly in Germany, France and Italy. ATL had total assets of EUR540.6m at end-2011 and is owned by FWU AG (74.9%), which itself is owned by nine partners (95%) and SwissRe Frankona (5%), and by VHV (25.1%), a medium-sized German insurance group.