A.M. Best Europe - Rating Services Limited has affirmed the financial strength ratings of A- (Excellent) and issuer credit ratings of "a-" of Delvag Luftfahrtversicherungs-AG (Delvag) and Delvag Rueckversicherungs-AG (Delvag Rueck) (both domiciled in Germany). The outlook for all ratings remains stable.
The ratings of Delvag reflect its role as the insurance captive of Lufthansa German Airlines (Lufthansa), its ultimate parent. Additionally, the ratings take into account Delvag's strong risk-adjusted capitalisation and stable operating performance.
The ratings of Delvag Rueck benefit from full rating enhancement reflecting the profit and loss absorption agreement provided by Delvag, its immediate parent.
Delvag's risk-adjusted capitalisation is expected to remain strong going forward. A profit and loss agreement in place with Lufthansa limits the potential for earnings retention whilst providing protection for Delvag's balance sheet, and consequently, for Delvag Rueck. Delvag is highly dependent on reinsurance to protect its fleet business; however, 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 equalisation reserves is expected to continue.
Delvag's disciplined underwriting and comprehensive reinsurance programme are expected to result in stable claim levels going forward. Earnings are also expected to continue to be supported by strong investment returns stemming from the up-streaming of profits from subsidiaries. A.M. Best expects Delvag to produce an excellent pre-tax profit in 2011, albeit somewhat lower than the very strong profit produced in 2010. For Delvag Rueck, future performance is likely to improve due to strengthening in its non-life underwriting performance. Performance of its life account is likely to remain around break-even, and overall investment results will continue to be good.
Delvag continues to leverage its aviation and transport experience to write a diversified portfolio of business along-side its core Lufthansa fleet portfolio. For these lines of business, A.M. Best believes that Delvag has the experience to determine its own pricing. Delvag's gross premiums written are expected to decrease slightly in 2011, driven by a small decrease in its aviation portfolio.
Delvag Rueck's business includes the 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). Premium income is likely to remain stable.
