Best Affirms Hannover Re’s Ratings; Revises Outlook to ‘Stable’

A.M. Best Co. has revised its outlook to stable from positive for the ratings of Hannover Rueckversicherung AG (Hannover Re) and its rated subsidiaries, while also affirming the German reinsurer’s financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit rating (ICR) of “a+” and the debt ratings either issued or guaranteed by Hannover Re.

Best explained that it expects “Hannover Re’s consolidated risk-adjusted capitalization to remain excellent, underpinned by the company’s decision not to pay a dividend during 2009.” Best also indicated that the change in the rating outlook reflects its “view that the improvement in risk-adjusted capitalization that supported the positive outlook is unlikely to materialize in the current trading environment.

“Nevertheless, the impact of unrealized losses and impairments in 2008 on the company’s capitalization has remained within tolerance at the current rating level, taking into account the remedial action taken by Hannover Re, including the suspension of dividend payments in 2009.”

Best added that in its view, “Hannover Re’s financial flexibility continues to be constrained by its dependence upon its majority shareholder, Talanx AG, which is a non-listed intermediate holding company.

“In addition, limited retrocessional capacity in the capital markets has been restrictive for Hannover Re in 2009, as the company historically intensively utilized these markets.”

The rating agency also indicated that Hannover Re’s earnings “are likely to improve significantly in 2009 against the backdrop of a favorable rating environment for several of the company’s main lines of business.” Best said it “believes that Hannover Re maintains strong controls for its underwriting of credit and surety business, although short-term earnings stability could be adversely affected by its participation in this business.

“Overall earnings will be positively influenced by the acquisition of the ING US individual life reinsurance business from Scottish Re Group Limited. Hannover Re is also likely to benefit from resilient investment performance following the sale of almost its entire equity portfolio in autumn 2008.”

Hannover Re’s business profile remains excellent in the global reinsurance market. Best said it expects gross written premium to rise significantly in 2009 to approximately €9.7 to €9.8 billion ($13.787 to $13.93 billion) from €8.1 billion $(11.51 billion) in 2008. Non-life reinsurance is likely to contribute approximately €5.5 to €5.7 billion ($7.817 to $8.1 billion), up from €5.0 billion ($7.106 billion) in 2008, reflecting rate increases in credit and surety lines, U.S. property lines and the German and Japanese market.

Life reinsurance is expected to contribute approximately €4.1 to €4.2 billion ($5.827 to $5.97 billion), an increase from €3.1 billion ($4.4 billion) “largely due to the acquisition of the ING US individual life reinsurance portfolio.”

Best summarized the affected ratings as follows:
The FSR of ‘A’ (Excellent) and the ICRs of “a+” have been affirmed for Hannover Rueckversicherung AG and its following rated subsidiaries:
E+S Rueckversicherung AG
Hannover Reinsurance (Ireland) Limited
Hannover Life Reassurance (UK) Limited
Hannover Life Reassurance (Ireland) Limited
Hannover Life Reassurance (Bermuda) Limited
Hannover Life Reassurance Company of America

Best also affirmed the debt ratings of “a” for the following issues:
— Hannover Finance (Luxembourg) S.A.-(guaranteed by Hannover Re)
— € 750 million subordinated fixed to floating rate bond, due February 2024
— € 350 million subordinated fixed to floating rate debentures, due March 2031.

The debt rating of “a-” has been affirmed for the following issues:
Hannover Finance (Luxembourg) S.A.- (guaranteed by Hannover Re)
— € 500 million undated guaranteed junior subordinated fix-to-floating callable bonds

Source: A.M. Best – www.ambest.com