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 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).
Table 16 shows the assessment based on the data as at 31 December 2017:

Table 16 Risk classification results for 2017

Risk classification results for 2017

BaFin

Number of good-quality insurers at previous year's level

In the course of the risk classification, BaFin rated 70.8 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. As in the previous years, BaFin did not rate any insurers with high or very high market relevance as an undertaking with low quality.

Results in the individual insurance classes

The development of the quality of the property/casualty insurance undertakings generated only minor divergences from the previous year, with more than 80 percent of the undertakings rated as "A" or "B", as before.

The assessment of the health insurers recorded a deterioration in quality, however. The proportion of health insurers rated "A" or "B" declined overall: more than 70 percent of the health insurance undertakings were rated "A" or "B". By contrast, there was an increase in the proportion rated "C".

The assessment of life insurers also recorded minor changes, although the majority of the life insurers continued to be classified in the medium quality range.

The proportions of Pensionsfonds rated "B" and "C" both increased by around three percentage points, with a corresponding decline in the undertakings classified as "A".

There was a fall of around seven percentage points in the Pensionskassen classified in the medium quality bracket. The proportions of Pensionskassen assessed as "A" and "D" both showed an increase.

There were no noteworthy movements between quality categories for reinsurers, on the other hand. The proportion in the upper range in the year under review was more than 82 percent, as before.

Number of insurers classified continues to decline

The number of undertakings classified during the year under review declined compared with the previous year. The reduction in the number of undertakings classified mainly reflected the decision to exclude the funeral expenses funds from the risk classification in line with the principle of proportionality.

Classification of insurance groups

As well as classifying the risks associated with individual insurance undertakings, BaFin will also classify all insurance groups subject to Solvency II for which it had responsibility for group supervision at group level in 2017. 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. It 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.