Fitch Rates Hannover Re ‘A+’

November 11, 2005

Fitch Ratings announced that it has affirmed Hannover Rueckversicherung AG’s (Hannover Re) and E+S Rueckversicherung AG’s Insurer Financial Strength (IFS) ratings of “A+”. Fitch also affirmed Hannover Re’s “A+” long-term rating of ‘A+’ and assigned a stable outlook.

Fitch has also affirmed the “A-” ratings assigned to Hannover Finance (Lux) S.A.’s $750 million subordinated notes due in 2024 and €500 million ($585 million) perpetual subordinated notes. Both issues are guaranteed by Hannover Re.

Fitch specifically indicated that its “affirmation of these ratings follows the publication of Hannover Re’s 3Q05 results. The group’s operating performance for the nine month period to September 2005 has been significantly impacted by exposure to a number of catastrophic events (particularly Hurricanes Katrina and Rita) which resulted in the erosion of net income to €61.9 million [$72.4 million] compared to €191.1 million [$223.4 million] reported for the equivalent period in 2004. The combined ratio for the property/casualty business segment was a disappointing 113 percent (2004-96.7 percent) and included 30.7 percentage points relating to major losses.”

Fitch indicated that it was affirming Hannover Re’s ratings in spite of the heavy losses because “these events currently represent an earnings issue for the group rather than a capital issue. Hannover Re is well positioned to benefit from an improvement in the premium rate environment during the current reinsurance renewal season, particularly in those lines of business directly impacted by the recent US hurricanes.”

The rating agency warned, however, that “should Hannover Re’s loss estimates from 2005 catastrophes deteriorate to the extent that the group’s capital position is materially weakened, this would likely have negative rating implications. If such deterioration were to occur, Fitch would assess the magnitude of any erosion in capital relative to Hannover Re’s current and prospective risk profile.

“In addition, Fitch views positively the decision taken by Hannover Re to establish a global IBNR buffer reserve of €200 million [$234 million] to cover any deterioration in offshore losses arising from hurricanes Katrina and Rita, particularly as the accurate quantification of these claims is likely to take some time. ”

Fitch also noted that the rating affirmation “reflects Hannover Re’s well diversified business mix, strong franchise and adequate capitalisation. Offsetting these positive rating factors is the group’s relatively high operating leverage on an absolute basis.
The recent decision taken by Hannover Re’s parent company Talanx AG to acquire Gerling group’s primary insurance operations including Gerling-Konzern Lebensversicherungs-AG and Gerling-Konzern Allgemeine Versicherungs-AG does not impact Hannover Re’s ratings due to its strong standalone business position and franchise as well as the financial flexibility derived from 49 percent of its ownership being in the form of a free float. These characteristics make Hannover Re’s ratings less dependent on the overall financial strength of the Talanx group.”

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