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 outlook of these Credit Ratings (ratings) is negative.

Delvag is the captive insurer for Lufthansa, a global aviation group domiciled in Germany.

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.

The rating agency said that 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.

The captive’s balance sheet strength is underpinned by its risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio, 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.

AM Best added that 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.