AM Best confirms the credit ratings of Delvag Versicherungs-AG

AMSTERDAM–(BUSINESS WIRE)–AM Best confirmed 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 for 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 management of business risks. The ratings also reflect ratings drift due to its association with its financially weaker parent company, Deutsche Lufthansa Aktiengesellschaft (Lufthansa).

The negative outlook reflects uncertainty related to the impact of air traffic demand trends 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 of Lufthansa, a global aviation group domiciled in Germany.

The strength of the captive’s balance sheet is underpinned by its risk-adjusted capitalization, as measured by Best’s capital adequacy ratio (BCAR), which remained at the highest level at the end of 2021 AM Best expects the captive’s forward-looking risk-adjusted capitalization to be maintained at the highest level, supported by a profit and loss absorption agreement with Lufthansa that provides Delvag with additional balance sheet protection. The balance sheet strength assessment also takes into account Delvag’s conservative and prudent reserve practices, as well as its good liquidity profile. A partially offset rating factor is Delvag’s moderately high reliance on reinsurance to protect its aircraft fleet business. However, the associated credit risk is mitigated by the use of a financially sound and diversified reinsurance panel.

Delvag has a good earnings history, as evidenced by a five-year weighted average operating ratio of 67% (2017-2021), as calculated by AM Best, supported by a good balance between underwriting and investment. Delvag delivered exceptionally strong underwriting performance in 2021 linked to lower claims experience and reserve releases – which included spot releases – as evidenced by a combined ratio of 68% (as calculated by AM Best), compared to 93 % in previous year. The company has undertaken corrective actions since 2020 on underperforming business lines and the partial cessation of reinsurance activities not related to the group.

Delvag’s profile is enhanced by its strategic importance and its integration within the Lufthansa Group. He continues to leverage his expertise in the aviation and transport sectors to write a third-party business book alongside his core Lufthansa fleet portfolio.

AM Best remains the leading rating agency for alternative risk transfer entities, with more than 200 such vehicles rated worldwide. For current Best credit ratings and independent data on the captive and alternative risk transfer insurance market, please visit www.ambest.com/captive.

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