Hannover Re Responds to Downgrade by Moody’s

March 28, 2003

Germany’s Hannover Re has issued a statement commenting on the actions taken by Moody’s Investors Service this week in downgrading the reinsurer’s financial strength rating from “A2” to “Baa1” and assigning a negative outlook.

“Moody’s has justified this move, inter alia, by suggesting that Hannover Re’s reinsurance recoverables were at a relatively high level, thus representing a considerable risk factor,” said the bulletin. “As stated by Hannover Re in a press release, the reinsurance recoverables actually do not represent any significant risk for the company as is also shown by previous experience. Furthermore, Hannover Re carefully analyses the strength of the reinsurance recoverables. 89% of the recoverables are due from companies rated by Standard & Poor’s with “A” or higher, so that a loss is extremely improbable.”

Hannover Re indicated that “Moody’s extremely pessimistic view obviously reflects their negative stance towards the entire insurance industry. Furthermore, Moody’s relatively poor rating not only diverges significantly from the assessment of the other leading rating agencies, it is also based on an entirely different level of information and degree of insight. The two leading rating agencies for the worldwide insurance and reinsurance industry, Standard & Poor’s and A.M. Best, have each awarded Hannover Re their second-highest rating of AA (“Very Strong”) and A+ (“Superior”), respectively, over a period of more than ten years.

“Throughout all these years the ratings awarded have been based on detailed information; they represent a so-called “interactive rating”, the company explained. Hannover Re’s Executive Board and its senior management grant both agencies an in-depth insight into the company’s net assets, financial position and results of operation; and usually they make information available that is normally confidential, such as business plans, strategic objectives and expectations regarding future developments, most notably the exceptionally high quality of the loss reserves and other provisions.

“This extensive insight, together with publicly available information, has formed the sound basis of Standard & Poor’s and A.M. Best’s evaluation of Hannover Re’s financial strength, profitability and market position. Moody’s evaluation in comparison is based solely on publicly available information and quantitative assessments. Moody’s does not have access to more extensive additional management information. Consequently, their rating is considerably less well-founded than the ratings awarded by Standard & Poor’s and A.M. Best” the announcement concluded.

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