AM Best affirms ratings of Lufthansa captive

AM Best has affirmed the financial strength rating of A (Excellent) and the long-term issuer credit rating of “a” of Delvag, the captive insurer for Lufthansa.

The rating agency said that the outlook of these ratings remains stable and that 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.

According to AM Best Delvag’s balance sheet strength is underpinned by risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), and is supported by the company’s good liquidity profile and profit and loss absorption agreement with Lufthansa that provides balance sheet protection but limits the accumulation of earnings.

A partly offsetting rating factor is Delvag’s 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.

AM Best stated that Delvag’s operating performance is strong, demonstrated by a five-year average operating ratio of 50 percent (2013-2017), which is supported by strong underwriting performance and good investment earnings. AM Best expects prospective underwriting results to remain at a strong level with a combined ratio similar to the 85 percent achieved in 2017.

The rating agency concluded by saying that Delvag’s profile is enhanced by its strategic importance to and integration within the Lufthansa group. In addition, it leverages its expertise in the aviation and transport sectors to write a book of third-party business alongside its captive business.