Best Assigns ‘A-‘ Ratings to German Insurer WuerttVers

March 30, 2007

A.M. Best Co. has assigned a financial strength rating of “A-” (Excellent) and an issuer credit rating of “a-” to German insurer Wuerttembergische Versicherung AG (WuerttVers) with a stable outlook.

“The ratings reflect the company’s excellent business profile in the German market, stable earnings despite accelerating competition in Germany and improving risk adjusted capitalization,” said Best. The rating also factors in Best’s view of the financial strength of the parent company, Wuestenrot & Wuerttembergische AG (W&W), “taking into account management’s efforts to improve consolidated earnings and risk management.”

Best noted that WuerttVers “has an overall excellent business profile in the German market, which was further improved by the acquisition of Karlsruher Versicherung, in particular in southwestern Germany.” The Company also underwrites in the London market, which, Best said, it “regards as complementary to its domestic portfolio but not as core.” Best also believes that “both WuerttVers and Karlsruher Versicherung benefit from its proprietary tied agent network in Germany. “

Best said it “expects gross premiums written (of the combined group) to moderately grow by 1 to 2 percent to €1.6 billion ($2.1 billion) in 2007, mainly driven by rating increases in the London market. This offsets a decline in premiums in Germany due to strong competition, but also due to cancellation of inadequately priced business. “The UK branch generated gross premiums written of approximately €275 million ($367 million) in 2006 comprising mainly property, financial institutions, professional indemnity, marine and aviation. The market penetration through its proprietary tied agent network remains excellent throughout the domestic market.”

Future earnings are expected to remain stable for 2007 at around €100 million ($133 million -before tax and allocation to equalization reserve. The return on premium would therefore be around 8.3 percent. Best also indicated that “underwriting results are likely to remain stable with a combined ratio between 96 percent and 97 percent as strong competition in the German motor market and higher commissions at the UK branch are compensated by favorable rate developments in certain international business lines.”

Best expressed confidence that the Company would be successful in “restructuring the loss making portfolio of Karlsruher Versicherung; however, WuerttVers is likely to incur substantial integration costs of approximately €15 million ($20 million).

“WuerttVers’ risk-adjusted capitalization is likely to continue to improve from higher (between €30-40 million [$40- $53.3 million]) allocation to the equalization reserve, which compensates for the cash financed acquisition of Karlsruher Versicherung in 2007. A.M. Best believes that WuerttVers’ claims reserves remain strong as evidenced by significant run-off profits in prior years, which A.M. Best expects to continue.”

In conclusion Best said it “believes that the management of WuerttVers’ parent company, W&W, is successfully addressing risk management issues for the whole group but more specifically at the building society and mortgage bank, which triggered a restatement of accounts. This should gradually lead to a reduction in the volatility of earnings. A.M. Best will closely monitor the effectiveness of the group’s enterprise risk management.”

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