AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of "a-" (Excellent) of Delvag Versicherungs-AG (Delvag) (Germany). The outlook of these Credit Ratings (ratings) is negative.
The ratings reflect Delvag's balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management. The ratings also reflect rating drag due to its association with its financially weaker parent, Deutsche Lufthansa Aktiengesellschaft (Lufthansa).
The negative outlooks reflect uncertainty relating to the impact of trends in air traffic demand and economic conditions on Lufthansa's core business and credit profile, which in turn impact Delvag's business profile and put pressure on the captive's operational performance.
Delvag is the captive insurer for Lufthansa, a global aviation group domiciled in Germany.
The captive's balance sheet strength is underpinned by its risk-adjusted capitalisation, as measured by Best's Capital Adequacy Ratio (BCAR), which remained at the strongest level at year-end 2021. AM Best expects the captive's prospective risk-adjusted capitalisation to be maintained at the strongest level further supported by a profit and loss absorption agreement with Lufthansa that provides Delvag with added balance sheet protection. 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 operating ratio of 67% (2017-2021), as calculated by AM Best, supported by a good balance of underwriting and investment income. Delvag recorded exceptionally strong technical performance in 2021 tied to a lower claims experience and also reserve releases- which included one-off releases-, as demonstrated by a combined ratio of 68% (as calculated by AM Best), compared with 93% in the prior year. The company has undertaken remedial actions since 2020 on underperforming lines of business, and partial discontinuation of non-group-related reinsurance business.
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.
AM Best remains the leading rating agency of alternative risk transfer entities, with more than 200 such vehicles rated throughout the world. For current Best's Credit Ratings and independent data on the captive and alternative risk transfer insurance market, please visit www.ambest.com/captive
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