Rating agency A.M. Best Co. Inc. downgraded the financial strength rating of the captive insurer of German airline Deutsche Lufthansa AG from A to A- citing a decline in aviation traffic due to COVID-19.
In a statement Friday, Oldwick, New Jersey-based Best said the ratings reflect a drag due to Delvag Versicherungs AG’s association with Lufthansa, but cited the captive insurer’s balance sheet strength which is “very strong” as well as its strong operating performance, neutral business profile and enterprise risk management.
Airlines across the world have reported huge falls in passenger numbers since the pandemic spread earlier this year.
The rating agency also downgraded various credit ratings and revised the outlook of Delvag’s credit ratings to negative from stable.
The negative outlooks reflect the potential for “further deterioration” in Lufthansa’s credit profile, as well as the risk that a slow recovery in the aviation industry will lead to a deterioration in performance metrics for Delvag, Best said.
Despite its balance sheet strength, the captive’s dependence on reinsurance to protect its aviation fleet business is a partially offsetting rating factor, Best said.
“However, the associated credit risk is mitigated by the use of a financially strong and diverse reinsurance panel,” Best said.
Delvag has a good historical earnings track record, but its 2019 performance was weaker, with its combined ratio weakening to 99%, from 78% in 2018, due mainly to a deterioration in the loss ratio, Best said.
More insurance and risk management news on the coronavirus crisis here.
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August 28, 2020 at 10:50PM
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Airline captive downgraded due to COVID-19 pressures - Business Insurance
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