S&P, Best See No Effect on Hannover Re Ratings

Standard & Poor’s Ratings Services announced that Hannover Re’s 2004 results would “have no impact on the ratings or outlook on group entities.” A.M. Best Co. commented that Hannover Re’s “ratings remain unchanged following the announcement of its consolidated 2004 year-end post-tax profit of 309 million euros ($422 million).”

S&P currently rates Hannover Re “AA-” with a stable outlook. Best rates the company “A” (Excellent).

“While the group’s reported ROE was below expectations, the shortfall is not considered material enough to impact the financial strength of the group,” stated S&P credit analyst Simon Marshall. S&P also noted that “for the ninth year in ten (2001 being the exception) the group met its own ROE target of 750 basis points in excess of the 10-year government bond yield.”

Both rating agencies cited the performance of Hannover Re’s program business, which, as the company had indicated in its earnings report, suffered the heaviest loss burden (See previous article).

The operations of the Clarendon Insurance Group, which makes up Hannover Re’s principle U.S. operating companies, were particularly hard hit. S&P noted: “The results reflect the performance of the program business unit, Clarendon, which reported a post-tax operating loss of 89 million euros [$115 million] for 2004 (after a profit of 42 million euros [$54.4 million] in 2003). Clarendon was heavily affected by the Florida storm losses and measures taken to improve confidence levels in the adequacy of loss reserves. Clarendon’s reported combined ratio was 114 percent (98 percent in 2003), of which 10 points related to the Florida storm losses.” Best noted that Hannover had strengthened Clarendon’s reserves.

Commenting on the Group’s 2005 outlook, Best said it “believes that Hannover Re’s earnings forecast (between EUR 430 – 470 million (USD 587 – 641 million)) for 2005 is feasible, partially due to the relative stability at the January 2005 property/casualty renewals, but subject to improving the profitability of the program business and achieving the targeted combined ratio of less than or equal to 95 percent.”