A.M. Best Upgrades Ratings of Delvag Luftfahrtversicherungs-AG and Delvag Rueckversicherungs-AG

LONDON--(BUSINESS WIRE)-- A.M. Best Europe – Rating Services Limited has upgraded the financial strength rating to A (Excellent) from A- (Excellent) and the issuer credit ratings to “a” from “a-” of Delvag Luftfahrtversicherungs-AG (Delvag) andits subsidiary,Delvag Rueckversicherungs-AG (Delvag Rueck) (both domiciled in Germany). The outlook for all ratings is stable.

The rating upgrades reflect Delvag’s increasingly strong risk-adjusted capitalisation and consistently excellent operating performance, with the company reporting a combined ratio of 54.1% in 2011 (2010: 72%). The ratings also take into account Delvag’s role as the insurance captive of Lufthansa German Airlines (Lufthansa), its ultimate parent. The ratings of Delvag Rueck reflect its importance to the Delvag group and the profit and loss absorption agreement provided by Delvag.

Delvag’s risk-adjusted capitalisation is expected to remain very strong going forward. A profit and loss agreement in place with Lufthansa limits the potential for earnings retention whilst providing protection for Delvag and Delvag Rueck’s balance sheet. Delvag also benefits from substantial reserve redundancies, which further enhances its capital position. While the insurer is dependent on reinsurance to protect its fleet business, the associated credit risk is limited through the use of highly rated reinsurers. The improving trend in Delvag Rueck’s risk-adjusted capitalisation due to increases in its equalisation reserve and silent claims reserves is expected to continue.

A.M. Best</org> expects Delvag to report an excellent pre-tax profit in 2012, albeit somewhat lower than that reported in 2011. Following some positive reserve development, Delvag’s pre-tax profit was up 25% to EUR 21.5 million, translating into a return on equity of 26%. Delvag’s disciplined underwriting and comprehensive reinsurance programme are expected to result in stable and low combined ratios (below 80%) going forward. Earnings are expected to continue to be supported by strong investment returns stemming from the upstreaming of profits from subsidiaries. Delvag Rueck’s operating performance is likely to improve going forward, and A.M. Best expects the company to report a good underwriting profit for 2011 as a result of lower catastrophe claims.

Delvag continues to leverage its aviation and transport experience to write a diversified book of business alongside its core Lufthansa fleet portfolio. Delvag’s gross premiums written are expected to decrease slightly in 2012, driven by a small decrease in its aviation book. Delvag Rueck’s business includes a life and health portfolio written for the Lufthansa group, which mainly comprises employee benefits covers. The reinsurer also writes a book of non-life reinsurance business in the open market (predominantly aviation, property and motor business). Delvag Rueck’s premium income is likely to remain relatively stable going forward.

Positive rating actions are unlikely at this time.

Negative rating actions could occur as a result of a deterioration in the credit worthiness of Lufthansa, the ultimate parent. Additionally, a significant deterioration in the risk-adjusted capitalisation and performance of Delvag or Delvag Rueck would also be detrimental to the ratings.

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. Key criteria utilised include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; “Rating Members of Insurance Groups”; and “Evaluating Non-Insurance Ultimate Parents”. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

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.

A.M. Best Europe – Rating Services Limited is a subsidiary of A.M. Best Company.Founded in 1899, A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2012 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.

A.M. Best
Charlotte Vigier, +(44) 20 7626 6264
Senior Financial Analyst
charlotte.vigier@ambest.com
or
Rachelle Morrow, +(1) 908 439 2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Sam Dobbyn, +(44) 20 7626 6264
Assistant Director
sam.dobbyn@ambest.com
or
Jim Peavy, +(1) 908 439 2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com

Source: A.M. Best Europe – Rating Services Limited