Improved earnings lead to Deutsche Rück ratings outlook upgrade

S&P Global Ratings has revised its outlook on Deutsche Rueckversicherung Group from negative to stable. Furthermore, the ratings agency has affirmed Deutsche Rück’s long-term insurer financial strength to ‘A+’.

This outlook revision reflect S&P’s view that Deutsche Rück has been able to turnaround the profitability of its German public law insurance business over the past two years.

Furthermore, it reflects S&P’s expectation that the insurance group will be able to maintain a healthy business generation in the public liability insurance (PLI) sector as well as in the broader market business over the next 12-24 months.

The outlook also incorporates S&P’s expectation that Deutsche Rück will keep extremely strong capital and earnings over the rating horizon, supported by conservative reserving and moderate earnings.

This follows a period of unprofitable business generation in this sector, which accounts for about one-half of its net premium base, in addition to high natural catastrophe losses in 2013.

Arno Junke, CEO of Deutsche Rück, commented: “In the last two years we have strengthened our competitive position within our core business on a lasting basis.”

In collaboration with the public law insurers, Deutsche Rück has initiated different countermeasures to enhance the underlying quality of the business.

S&P now believes that the group is well placed to continue performing broadly in line with its reinsurance peers, particularly for the non-PLI business.

S&P said: “DR's ability to enhance its PLI business also confirms our view of its special role as internal reinsurer for the PLI system and underlines the group's competitive strength.

“While we recognise that intense competition in the non-PLI business could erode some profit margins, we expect DR's stringent underwriting discipline will prevent material deterioration in earnings.”

S&P also believes that the improved earnings and ample capitalisation make the group more resilient to high natural catastrophe claims.