A.M. Best Affirms Ratings of PrismaLife AG [Professional Services Close – Up]

A.M. Best Europe - Rating Services Limited has affirmed the financial strength rating of A- (Excellent) and issuer credit rating of "a-" of PrismaLife AG (PrismaLife) (Liechtenstein).

The outlook for both ratings remains stable.

The ratings of PrismaLife reflect its strong risk-adjusted capitalisation, good earnings and niche business position as a specialist unit-linked insurer.

A.M. Best believes that PrismaLife's risk-adjusted capitalisation will remain strong prospectively, despite some anticipated business growth in the next two to three years. Risk-adjusted capitalisation is supported by the limited guarantees on the products the company markets, which restricts capital strain. Dividend payments are expected to be low in 2012 and 2013. PrismaLife's relatively high financial leverage is progressively reducing as a result of higher capital build up and partial debt redemption. The company's financial leverage remains within the tolerance levels for its ratings.

PrismaLife's underlying margins are good and supported by low administration expenses resulting from its efficient organisational structure. Pre-tax earnings deteriorated by 24 percent to EUR 4.4 million in 2011 due to the impact of volatile investment income and higher claims. A.M. Best believes that PrismaLife's overall earnings before taxes are likely to remain relatively stable at EUR 4-5 million in 2012. Prospectively, A.M. Best expects the impact of new business strain on earnings to continue to diminish while policies written in the early years of PrismaLife's operations generate increased profits. However, this is likely to be partially offset by higher surrenders and lapses due to the ongoing difficult economic environment.

PrismaLife's gross written premiums are expected to increase to EUR 230 million by 2013, supported by its increasingly diversified distribution network. PrismaLife continues to have a good niche business position as a unit-linked life insurer benefiting from flexible and innovative products. In line with the rest of the German life market, PrismaLife's premium income has been constrained in the last three years by a challenging economic environment. However, in 2011, its premiums increased 11 percent to EUR 199 million. Regular business, which has been more profitable historically, continued to develop well and accounted for 80 percent of total premiums by year-end 2011.

Positive rating actions are unlikely at this time.

Negative rating actions could occur as a result of a significant deterioration in the risk-adjusted capitalisation and performance of PrismaLife.

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Key criteria utilised include: "Risk Management and the Rating Process for Insurance Companies"; "Understanding BCAR for Life/Health Insurers"; and "Equity Credit for Hybrid Securities". Best's Credit Rating Methodology can be found at ambest.com/ratings/methodology.

More information:

ambest.com

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