Best Assigns HDI Sub ‘A’ Ratings

August 11, 2005

A.M. Best Co. announced that it has assigned a financial strength rating of “A” (Excellent) and an issuer credit rating of “a” to Germany’s HDI Industrie Versicherung AG (HDI Industrie) with a stable outlook.

“The ratings reflect the enhancement received from the implicit support of HDI Industrie’s immediate parent company, Talanx AG, which is ultimately owned by the mutual insurer, HDI V.a.G,” said Best. “Other rating factors are HDI Industrie’s strong business profile in the German industrial insurance market, excellent operating performance despite a softening market and its excellent risk-adjusted capitalisation.”

Best noted that “HDI Industrie remains one of the leading German industrial insurers. Following strong growth of 8 percent in 2004 mainly due to a shortage of capacity in liability and new business in property.” Best also indicated that it “expects gross premiums written to decline by 2 percent to approximately 1.5 billion euros ($1.86 billion) in 2005 as premium rates have started to soften, especially in industrial property, and the company withdraws from inadequately priced business. The decline is partially alleviated by multi-year contracts written in 2004 and increased cross-selling activities leveraging HDI Industrie’s outstanding client relationships.”

Best also said it “expects HDI Industrie to increase earnings by approximately 50 percent to 25 million euros ($31 million) (after transfer to equalisation reserves), as the anticipated deterioration of the combined ratio by approximately 3 percent to 91 percent from rate reductions in property and higher catastrophe claims is compensated by higher investment income.”

Discussing the company’s risk-adjusted capitalization, Best characterized it as “excellent,” and noted that “a transfer to equalisation reserves of approximately 80 million euros ($ 99 million) offsets higher capital requirements due to an increase in net retention and an increase in liability reserves.

“An offsetting factor is HDI Industrie’s significant reliance on reinsurance despite an anticipated reduction in cession rates, which is partially alleviated by approximately 50 percent of reinsurance recoverables due from Hannover Re.”

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