AM Best affirms Delvag ratings

AM Best has affirmed the financial strength rating of A- and the long-term issuer credit rating of “a-” of Delvag Versicherungs, the captive insurer for Lufthansa, a global aviation group domiciled in Germany.

The outlook of these ratings is stable.

AM Best said that the ratings reflect Delvag’s balance sheet strength, which it assesses as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management. The ratings also reflect a rating drag due to the company’s association with its financially weaker parent, Deutsche Lufthansa Aktiengesellschaft (Lufthansa).

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 2022. 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, which 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.

According to AM Best Delvag has a good historical earnings track record, as demonstrated by a five-year weighted average operating ratio of 65% (2018-2022), as calculated by AM Best, supported by a good balance of underwriting and investment income.

Delvag recorded a strong technical performance in 2022 tied to a low claims experience, as demonstrated by a combined ratio of 72%, as calculated by AM Best, which was below the five-year weighted average combined ratio of 83% (2018-2022). 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,” said AM Best. “It continues to leverage its expertise in the aviation and transport sectors to write a book of third-party business alongside its core Lufthansa portfolio.”