AM Best rates Lufthansa’s captive ‘Excellent’

Ratings agency AM Best has affirmed the financial strength rating of A (Excellent) of Delvag Versicherungs-AG, the captive insurer of Deutsche Lufthansa Aktiengesellschaft (Lufthansa), a German airline.

The outlook of the ratings remains stable, and reflects Delvag’s strong risk-adjusted capitalisation following the merger and its track record of solid operating performance at both entities pre-merger.

Delvag’s role as the insurance captive of Lufthansa is also considered in the ratings.

Partly offsetting the rating factor is Delvag’s dependence on reinsurance to protect the Lufthansa fleet business. However, AM Best said the associated credit risk is mitigated by the use of a financially strong and diverse reinsurance panel.

Delvag’s risk-adjusted capitalisation is expected to remain strong, supported by its equalisation reserve and silent net reserves, and reflecting its moderate risk profile. A profit and loss absorption agreement with Lufthansa provides balance sheet protection but limits the captive’s accumulation of earnings.

AM Best said that the captive’s robust earnings are also considered in the ratings, underpinned by strong technical performance.

The ratings agency expects disciplined underwriting and a comprehensive reinsurance programme to support good prospective performance. Additionally, the captive is expected to benefit from good investment returns (2016: net investment return including gains of 9.7 percent).

“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 fleet portfolio.”