AM Best has released a negative credit ratings outlook for Delvag Versicherungs-AG (Delvag), the captive insurer for Germany-domiciled global aviation group Lufthansa. The captive has also been given a financial strength rating of A- (Excellent) and a long-term issuer credit rating of “a-” (Excellent) by AM Best. Delvag’s balance sheet has been assessed as “very strong”, with AM Best also recognising the captive’s strong operating performance, neutral business profile, and appropriate enterprise risk management. AM Best recognises Delvag’s “conservative and prudent reserving practices, as well as its good liquidity profile”. The balance sheet is additionally protected by a profit and loss absorption agreement between the parent and captive companies. The captive has a five-year weight average operating ratio of 67 per cent between 2017 and 2021, according to AM Best. This historically good earnings track record is supported by a balance of underwriting and investment income. Since 2020, remedial action has been taken on underperforming lines of business and partial discontinuation of non-group-related reinsurance business. However, uncertainty around air traffic demand trends and an unpredictable economy mean that the core business and credit profile of the financially weaker parent company could be negatively impacted. As a result, the business profile and operational performance of the captive will be under pressure.
