R+V Versicherung AG. Table Of Contents. Rationale. Outlook. Base-Case Scenario. Business Risk Profile. Financial Risk Profile

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1 Primary Credit Analyst: Silke Longoni, Frankfurt (49) ; Secondary Contacts: Ralf Bender, CFA, Frankfurt (49) ; Fouad Bouhlou, Frankfurt (49) ; Table Of Contents Rationale Outlook Base-Case Scenario Business Risk Profile Financial Risk Profile SupportAnd Factors Specific To The Holding Company Related Criteria And Research JUNE 27,

2 Rationale Business Risk Profile Fourth largest insurance group in Germany, with a market share of about 6%. Very strong competitive position based on a sustainably very successful bancassurance business model and diverse business mix. Full financial services offering to cooperative banks' clients, while operating in the same retail and small and midsize enterprise target markets as the cooperative banks. Above average growth in life and health insurance and at-market average growth in property and casualty (P&C) insurance in Counterparty Credit Rating Financial Risk Profile Current 'AA' capital adequacy expected to weaken to the 'A' range because of further business growth and the profit-transfer agreement with parent DZ BANK AG Deutsche Zentral-Genossenschaftsbank (DZ BANK). Somewhat lower emphasis on bottom-line earnings due to its strategic role within the cooperative banking sector and its commission-generating capacity. Comparably favorable performance and cost effectiveness of the life insurance operations versus peers', but additional reserving requirements and low yields will likely weigh further on life results. Non-life results are weaker than peers'. Reinsurance exposure and material group-internal investments lead to a moderate risk position. Other Factors We consider the R+V insurance group (R+V) a core subsidiary to DZ BANK and the German cooperative banking sector, based on its integral role in the sector's strategy. R+V Versicherung AG (RVV) has an intrinsic role as operating holding and reinsurance company of R+V. We equalize the rating on RVV with that on the core operating subsidiaries of DZ BANK because RVV acts as the group's internal reinsurer and has no debt. The core status of R+V's subsidiary, KRAVAG-LOGISTIC Versicherungs AG (KLog), is based on Klog's role as the group's dedicated carrier for its business with the German road haulage segment, which is dominated by cooperative organizations. Outlook Standard & Poor's Ratings Services' stable outlooks on RVV and its subsidiary KLog reflect that on DZ BANK. We expect RVV and KLog to remain integral to DZ BANK, owing to their contribution to the cooperative banking sector's business strategy. Upside scenario An upgrade would follow a similar action on DZ BANK, which we also consider unlikely at this stage. JUNE 27,

3 Downside scenario Although unlikely at present, we could lower the ratings on RVV and KLog if we were to lower those on DZ BANK. This could also occur in the unlikely event that R+V's credit profile deteriorated to an extent that would lead us to question its intrinsic role to the cooperative banking sector. Base-Case Scenario Macroeconomic Assumptions We assume moderate economic growth and inflation, as well as continuously low unemployment rates in Germany over We expect 10-year German government bond yields to increase only modestly until 2016 to 1.9%. Company-Specific Assumptions Growth in gross premiums written (GPW) of 4% to 6%, which we anticipate will be at the market average for non-life business and above the market average in life and health. Capital adequacy gradually weakening from the current 'AA' level, but remaining in the 'A' range, due to expected continuation of business growth and inability to bolster the capital base through retained earnings, due to the profit transfer agreement with DZ BANK. Annual group net income (based on International Financial Reporting Standards) exceeding 250 million in 2014 and more than 300 million in 2015 and A group net investment yield of between 3.7% and 3.9% for Improved non-life profitability, barring any major natural catastrophes, but with net combined (loss and expense) ratios still slightly higher than 100%. Stable gross surpluses, resulting in a return on assets (ROA) of about 140 basis points (bps) in life and a new-business margin (based on the annual premium equivalent) of more than 30% for Business Risk Profile By distributing insurance products to customers of German cooperative banks, the R+V group contributes to a full financial services offering to the cooperative banking sector and it operates in the same retail and small and midsize enterprise target markets as the cooperative banks. In this function, and owing to its franchise and product diversity, we consider that R+V has established a very strong competitive position in the German insurance industry. R+V offers life and health insurance (54% of the group's premium income) and non-life insurance (46%; including reinsurance business), especially through its main risk carriers R+V Lebensversicherung AG and R+V Allgemeine Versicherung AG (neither rated). The R+V group holds a top-four market position in Germany. We expect it to continuously report above-average growth that benefits from a diverse business mix and from its wide market presence through its continuously very successful bancassurance model, which is complemented by a foothold in the German broker market. Under our base case, we forecast that, despite a demanding market environment, the group's premiums will increase by 4% to 6% in , which we expect to be above the market average in life and health and at the market average for P&C. JUNE 27,

4 Financial Risk Profile R+V has successfully operated under its primary insurance business model for many years. This has led to continuous above-market-average growth and consequently risk-capital growth, which has outpaced that of earnings in recent years. We still expect R+V to maintain capital adequacy at least in the 'A' range over We acknowledge that the group's strategic role within the cooperative banking sector implies a lower emphasis on bottom-line profitability. Nonetheless, we believe that R+V's modest earnings relative to its business volumes and capital base, and its profit-transfer agreement with DZ BANK, constrain its ability to build capitalization in line with its growth ambitions. In our base-case scenario, we forecast that R+V's capital position will gradually weaken from the current 'AA' level, but that it will maintain capital adequacy in excess of our requirements at the 'A' level over We estimate that total adjusted capital will stay largely flat through In exchange for the profit-and-loss transfer agreement with its ultimate parent DZ BANK, R+V will receive further capital injections from DZ BANK to support business growth and maintain capital adequacy. In our base case, we assume a net income exceeding 250 million in 2014 and more than 300 million for 2015 and About 88 million in profit from the non-life segments (together with the active reinsurance business) contributes about 43% of the group's overall earnings, which are significantly supported by investment income. The non-life underwriting performance is weaker than that of peers' of a similar size as R+V, which is visible in the group's five-year average net combined ratio of about 104.1%, compared with 105.5% for R+V's non-life segment was heavily affected by natural catastrophes in the third quarter of For , we expect in our base-case scenario that non-life profitability will improve, but that this segment will still report net combined ratios slightly exceeding 100% (barring any major natural catastrophes). The life and health segments account for about 57% of the group's bottom-line results, with 116 million in This segment's gross surplus improved to 676 million from 553 million in 2012, translating into an ROA of about 140bps. R+V had to finance a high but declining amount of additional reserving requirements (so-called "Zinszusatzreserve"), which totalled 184 million in 2013 after 225 million in 2012, and was taken from the gross surplus without extraordinary realization of unrealized capital gains. For , we forecast stable gross surpluses in life, resulting in an ROA of about 140bps and a new-business margin--based on the annual premium equivalent--of more than 30%. R+V's investment portfolio is well spread across a range of asset classes and single obligors. That said, R+V's exposure in the financial sectors is still somewhat higher than peers', with most of the investments with cooperative sector banks. However, in our view, R+V's bond portfolio benefits from strong credit quality, with more than 70% of the fixed-income investments rated 'AA' or higher. Only 2% are in speculative-grade bonds (rated 'BB+' or lower). In 2013, R+V increased its equity exposure to about 6.5%, from 4.5% in 2012, in light of the favorable equity markets. Interest risk is high because of the investment focus on fixed-income securities and because most of R+V's liabilities JUNE 27,

5 comprise life insurance policies with high average guaranteed interest rates. RVV's third-party reinsurance business provides the R+V group with the potential for international diversification. However, the group's expansion in this segment in recent years has put additional pressure on its capitalization, in our view. We expect the segment's gross premiums to continue to contribute about 10% to the group's total premiums. We believe RVV's reinsurance business creates an additional source of volatility in the group's capital and earnings, and we assume that any further accelerated expansion in this business could change the group's financial risk profile. SupportAnd Factors Specific To The Holding Company The ratings on RVV reflect our view of its intrinsic role as operating holding and reinsurance company of the R+V group, which is a core operation of its majority shareholder, DZ BANK, and of the German cooperative banking sector. In our view, R+V is an integral part of the cooperative sector's strategy. We regard KLog as core to the R+V group because it is the group's dedicated carrier for its business with the German road haulage segment, which is dominated by cooperative organizations. RVV is the R+V group's internal reinsurer, but it also underwrites material third-party reinsurance, mainly from small and midsize insurers. RVV receives cash flows stemming from profit-transfer agreements with its primary insurance subsidiaries. In addition, RVV has no debt. The ratings on RVV are therefore at the same level as those on the group's core operating subsidiary, KLog. Related Criteria And Research Ratings Above The Sovereign--Corporate And Government Ratings: Methodology And Assumptions, Nov. 19, 2013 Insurers: Rating Methodology, May 7, 2013 Group Rating Methodology, May 7, 2013 Refined Methodology And Assumptions For Analyzing Insurer Capital Adequacy Using The Risk-Based Insurance Capital Model, June 7, 2010 Ratings Detail (As Of June 27, 2014) R+V Versicherung AG Financial Strength Rating Counterparty Credit Rating Counterparty Credit Ratings History 05-Dec Aug Aug-2004 A+/Stable/-- A/Stable/-- JUNE 27,

6 Ratings Detail (As Of June 27, 2014) (cont.) Related Entities KRAVAG-LOGISTIC Versicherungs AG Financial Strength Rating Issuer Credit Rating *Unless otherwise noted, all ratings in this report are global scale ratings. Standard & Poor's credit ratings on the global scale are comparable across countries. Standard & Poor's credit ratings on a national scale are relative to obligors or obligations within that specific country. Additional Contact: Insurance Ratings Europe; [email protected] JUNE 27,

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