MARC AFFIRMS FWU LIFE INSURANCE LUX S.A.’S INSURER FINANCIAL STRENGTH RATING AT AA-; REVISES OUTLOOK TO STABLE

MARC has affirmed its insurer financial strength rating of AA- on Luxembourg-based FWU Life Insurance Lux S.A. (FWU Life) (formerly known as Atlanticlux Lebensversicherung S.A.). The outlook on the rating has been revised to stable from developing.

The outlook revision follows the merger cancellation between FWU Life and Skandia Lebensversicherung AG (Skandia Austria). The parent company, FWU AG, had initially planned the merger after acquiring Skandia Austria’s parent, Skandia Austria Holdings AG in 2015. As the merger was aborted in 2016, there will be no change in the business profile of FWU Life; Skandia Austria (now known as FWU Life Insurance Austria AG) will remain a subsidiary of FWU AG and a sister company to FWU Life.

The affirmed rating is based on the Malaysian national rating scale and is mainly driven by FWU Life’s low business risk of primarily underwriting unit-linked life insurances and its low retention of mortality risk. These positive factors are moderated by FWU Life’s modest market share in the unit-linked life insurance segment, a lack of product diversity and tough economic conditions that would weigh on business growth.

For 1H2016, FWU Life recorded 17.1% year-on-year (y-o-y) growth in gross written premiums (GWP) to EUR80.7 million, driven by strong growth in Italy, which remains its largest market and accounted for 42.3% of GWP contributed during the period. This has been largely attributed to the strong quality of its agency force in the country. Largely due to lower reinsurance commission and profit participation, FWU Life’s net profit declined by 24.1% y-o-y to EUR2.3 million. Over the near term, FWU Life’s performance could be pressured by prevailing uncertainties in the euro zone. The Brexit vote in June 2016 stirred the European financial market on the back of concerns on lower economic activities.

The aforementioned factors notwithstanding, MARC notes that FWU Life has remained profitable over the last five years mainly due to the insurer’s strategy on investment and mortality risks. FWU Life’s investment risks from its unit-linked business are borne solely by policyholders while mortality risks are ceded to well-established reinsurers. Its capital position remains strong with a solvency ratio of 271% in 2015 (2014: 258%), above the regulatory requirement of 150%. The higher solvency ratio was due to the increase in capital and reserves by 25.0% to EUR34.9 million following the subscription of an additional EUR3.0 million shares by FWU AG during the year.

FWU Life’s Solvency Capital Requirement (SCR), which is based on the Solvency II framework, declined to 121% as at end-June 2016 due in part to the decline in the risk-free interest rate (end-January 2015: 147%). Its Solvency II ratio remains above the minimum capital requirement of one time of its obligations over the next 12 months.

The stable outlook on the rating incorporates MARC’s expectations that FWU Life will maintain its business and financial profile amid challenges posed by the current economic environment in its key markets.

Contacts: Afeeq Amiri, +603-2082 2256/ afeeqamiri@marc.com.my, Sharidan Salleh, +603-2082 2254/ sharidan@marc.com.my.

February 23, 2017