AM Best has affirmed the financial strength rating of ‘A-’ (excellent) and the long-term issuer credit rating of ‘a-’ (excellent) of Lufthansa’s German-domiciled Delvag Versicherungs-AG. The outlook of the ratings is stable.
Delvag uses its expertise in the aviation and transport sectors to write a book of third-party business alongside its core first party insurance for the Lufthansa portfolio.
In August, it was revealed Lufthansa was considering the sale of its near 100-year-old captive Delvag and its in-house broker Albatros, according to reports from Bloomberg.
In October 2021, Delvag’s Tobias Winkler and Andreas Brügel spoke on GCP #58 about the history and evolution of the one of the oldest captive insurer’s in the world.
The balance sheet strength of the captive 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 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 a financially strong and diverse reinsurance panel.
Delvag has a good historical earnings track record, demonstrated by a five-year weighted average operating ratio of 65% (2018-2022), supported by a good balance of underwriting and investment income.
The captive recorded a strong technical performance in 2022 tied to a low claims experience, with a 72% combined ratio, below the five-years 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