Fitch Ratings has affirmed Luxembourg-based FWU Life Insurance Lux S.A.'s (FWU Lux) Insurer Financial Strength (IFS) Rating at 'BBB+' and Long-Term Issuer Default Rating (IDR) at 'BBB'. The Outlooks are Stable.

The rating reflects FWU Lux's strong capitalisation, its strong and stable earnings, as well as its 'Less Favourable' company profile.

KEY RATING DRIVERS

'Less Favourable' Company Profile: FWU Lux's company profile reflects its limited product diversification and small size. FWU Lux is a small insurance company that specialises in unit-linked products, with total assets (excluding reinsurance assets) of EUR946 million at end-2022.

Limited Diversification: Although FWU Lux's geographical diversification is significant for its size, FWU Lux's focus on unit-linked business leaves it vulnerable to a reduction in demand for these products. Unit-linked profitability is strongly related to the size of assets under management (AUM) and is therefore exposed to the volatility of financial markets. Fitch views FWU Lux's fairly stable AUM development during capital-market declines as positive for its credit profile. It also supports its earnings prospects.

'Strong' Capitalisation: Our view on capitalisation is based on FWU Lux's 'Extremely Strong' score under Fitch's Prism Factor-Based Capital Model at end-2022 as well as its strong Solvency II (S2) ratio of 197% at end-2022 (end-2021: 133%). In 2022, FWU Lux received a EUR5 million capital injection from its parent company, FWU AG, to support its growth and improve its solvency ratio. Fitch expects FWU Lux's Prism FBM score to remain 'Extremely Strong' and its S2 ratio to be at least 140% at end-2023.

Strong Financial Performance: FWU Lux's pre-tax income deteriorated to EUR4.5 million in 2022 (2021: EUR5.6 million), due to expenses related to the launch of new products and the effects of the Ukraine war on the performance of AUM. But net income improved to EUR2.9 million from EUR1.8 million due to a one-off tax provision in 2021. FWU Lux's return on equity (ROE) was about 5% in 2022.

Ownership Neutral to Rating: FWU Lux is owned by FWU AG, a financial services provider located in Germany. Fitch views ownership as neutral to FWU Lux's rating; however, we believe that the FWU Lux benefits from its parent's skills and experience, particularly in product development and servicing distribution partners, as well as its financial resources, for example via capital injections.

Low-Insurance-Risk Business: FWU Lux faces limited insurance risk, since a major part of the mortality and disability risks in its portfolio is reinsured. For mortality, the net sum-at-risk per policy is capped at EUR5,000.

RATING SENSITIVITIES

Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:

- A substantial improvement in FWU Lux's company profile, as reflected in, for example, a growing franchise, a larger scale and greater diversification

Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:

- A weakening in FWU Lux's company profile as manifested in, for example, a significant decline in its new business premium

- Significant and sustained deterioration in earnings, resulting in a ROE below 5% over a prolonged period

-Sustained deterioration in capitalisation, for example, via a lower S2 ratio to under 125%

BEST/WORST CASE RATING SCENARIO

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG CONSIDERATIONS

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

PARTICIPATION STATUS

The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer’s available public disclosure.

APPLICABLE CRITERIA

·Insurance Rating Criteria (pub. 21 Jul 2023) (including rating assumption sensitivity)

APPLICABLE MODELS

Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).

·Prism Factor-Based Capital Model, v1.8.0 (1)

ADDITIONAL DISCLOSURES

·Dodd-Frank Rating Information Disclosure Form

·Solicitation Status

·Endorsement Policy

ENDORSEMENT STATUS

DISCLAIMER & DISCLOSURES

All Fitch Ratings (Fitch) credit ratings are subject to certain limitations and disclaimers. Please read these limitations and disclaimers by following this link: https://www.fitchratings.com/understandingcreditratings. In addition, the following

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SOLICITATION STATUS

The ratings above were solicited and assigned or maintained by Fitch at the request of the rated entity/issuer or a related third party. Any exceptions follow below.

ENDORSEMENT POLICY

Fitch’s international credit ratings produced outside the EU or the UK, as the case may be, are endorsed for use by regulated entities within the EU or the UK, respectively, for regulatory purposes, pursuant to the terms of the EU CRA Regulation or the UK Credit Rating Agencies (Amendment etc.) (EU Exit) Regulations 2019, as the case may be. Fitch’s approach to endorsement in the EU and the UK can be found on Fitch’s Regulatory Affairs page on Fitch’s website. The endorsement status of international credit ratings is provided within the entity summary page for each rated entity and in the transaction detail pages for structured finance transactions on the Fitch website. These disclosures are updated on a daily basis.