Standard & Poor's Ratings Services (S&P) announced that it has assigned its 'A+' long-term counterparty and insurer financial strength ratings to Germany-based Deutsche Rückversicherung AG (DR), with a stable outlook.
The ratings reflect the financial strength of the consolidated Deutsche Rückversicherung group (DR group), which DR forms a core part of and it holds a majority stake in Deutsche Rückversicherung Schweiz AG (DR Swiss).
"Factors supporting the ratings are the group's unique position as internal reinsurer within the German public law insurance (PLI) sector, its strong operating performance, and very strong capitalization," said S&P's credit analyst Wolfgang Rief. "Partially offsetting these strengths is the limited growth potential for the DR group's traditional business with the PLI sector and the uncertainties associated with the strategy of expanding the business outside this traditional sector."
S&P believes that the group's expansion outside its traditional business model is being pursued on a prudent basis, but still could involve some execution risk. Management has yet to demonstrate its ability to build a sustained and profitable track record of non-PLI business.
"The stable outlook is based on the expectation that the DR group maintains its unique position as internal reinsurer for the PLI sector, securing the group a stable premium inflow in its core business segment," said Mr. Rief.
Expansion outside the PLI sector will be carried out prudently and with a strong focus on profitability, resulting in moderate premium growth rates.
Furthermore, the DR group is expected to maintain its strong operating performance, with ROE of about 10% in 2004 and 2005, underpinned by net combined ratios below 100% over the same period. In addition, DR Swiss is expected to break-even in its underlying earnings by 2005 at the latest. Risk-based capitalisation is expected to remain very strong.
