BaFin allocates the insurance undertakings it supervises to risk classes that it uses to define how closely the insurers are supervised. Insurers are allocated to classes using a two-dimensional matrix that reflects their market impact and quality. The market impact of life insurers, Pensionskassen and funeral expenses funds, and Pensionsfonds is measured on the basis of their total investments. The relevant parameter for health insurers, property/casualty insurers and reinsurers is those undertakings' gross premium income.

Market impact is measured on a four-tier scale of "very high", "high", "medium" and "low". The quality of the insurers is based on an assessment of the following factors: net assets, financial position and results of operations, growth and quality of management.

BaFin assesses the first two factors using insurance-specific (mainly quantitative) indicators, while it assesses management quality using qualitative criteria. The rating system adds together the ratings of the individual factors to form an overall rating on a four-tier scale from "A" (high quality) to "D"(low quality).

The following table shows the assessment based on the data as at 31 December 2016:

Table 16 Risk classification results for 2016

Risk classification results for 2016

Source: BaFin

Slight decline in number of good-quality insurers

In the course of the risk classification, BaFin rated 68.1 percent of the insurers as "A" or "B". The proportion of undertakings in the upper quality ratings therefore remained at the same level as in the previous year. The proportion of undertakings rated "A" and "C" declined in comparison with the previous year, while undertakings assessed as "B" and "D" both recorded an increase. As in the previous years, BaFin did not rate any insurers with high or very high market relevance as having a low quality.

Results in the individual insurance classes

There were no significant movements between quality categories for health insurers. As in the previous year, there were no health insurance undertakings assessed with a "D" rating in the year under review. Health insurers rated as "B" once again represented the majority of the segment with a proportion of more than 60 percent.

In the life insurance and funeral expenses funds segment, most undertakings again received ratings in the middle quality categories. The life insurers recorded a deterioration in the quality of their ratings.
The development of the quality of the property/casualty insurance undertakings generated only minor divergences from the previous year, with more than 80% of the undertakings rated as "A" or "B".
While there were also no noteworthy movements between categories for the Pensionsfonds, a deterioration in the assessed quality of the Pensionskassen was recorded. The proportion of Pensionskassen rated "B" and "D" increased by one to two percentage points in each case, with a corresponding decline in the undertakings classified as "A" and "C".

There was a modest increase in the number of reinsurance undertakings assessed as "B". The proportion in the upper quality range in the year under review was more than 82%.

Number of insurers continues to decline

As in previous years, the number of undertakings classified during the year under review declined further. This represented a continuation of the downward trend in the number of insurers recorded in previous years.

Classification of insurance groups

As well as classifying the risks associated with individual insurance undertakings, BaFin also classified all insurance groups subject to Solvency II for which it has responsibility for group supervision at group level in 2016. In contrast to a purely mathematical aggregation of the classification results of the individual undertakings, this quality assessment uses additional qualitative and quantitative group-specific inputs, such as profit transfer and control agreements. The annual group-level risk classification reflects the growing importance of the supervision of insurance groups, and was updated and expanded with the introduction of Solvency II. The data resulting from BaFin's group-level risk classification thus generate significant added value and provide aggregated information on the overall position of the group.