AMSTERDAM: AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” of Delvag Versicherungs-AG.
The outlook of these credit ratings (ratings) remains stable.
The ratings reflect Delvag’s balance sheet strength, which AM Best categorises as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.
Delvag is the captive insurer for Deutsche Lufthansa Aktiengesellschaft (Lufthansa), a global aviation group domiciled in Germany.
Delvag’s balance sheet strength is underpinned by risk-adjusted capitalisation that AM Best expects to be maintained at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), and supported by a profit and loss absorption agreement with Lufthansa that provides balance sheet protection, as well as a track record of modest annual earnings retention.
The balance sheet strength assessment also factors in Delvag’s conservative and prudent reserving practices, as well as its good liquidity profile.
A partly offsetting rating factor is Delvag’s moderately high dependence on reinsurance to protect its aviation fleet business. However, the associated credit risk is mitigated by the use of a financially strong and diverse reinsurance panel.
Delvag has a good historical earnings track record, as demonstrated by a five-year weighted average return on equity of 10% (2014-2018), supported by a good balance of underwriting and investment income.
The company reported a combined ratio of 78% in 2018. AM Best expects prospective operating performance to remain strong, although a reallocation of expenses from the non-technical account to the technical account is likely to lead to a higher reported combined ratio going forward.
Delvag’s profile is enhanced by its strategic importance to and integration within the Lufthansa group. It continues to leverage its expertise in the aviation and transport sectors to write a book of third-party business alongside its core Lufthansa fleet portfolio.
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