Best Revises HDI V.a.G., Talanx ICR Outlook to Positive; Affirms Ratings

October 5, 2012

A.M. Best Europe – Rating Services Limited has revised the outlook of the issuer credit rating (ICR) to positive from stable and affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and the ICR of “a” of HDI Haftpflichtverband der Deutschen Industrie V.a.G. (HDI V.a.G.), the ultimate mutual parent company of Talanx AG, which is the intermediate management holding company for all HDI V.a.G. companies (collectively the Group).

Best also revised the outlook of the ICRs to positive from stable and affirmed the FSR of ‘A’ (Excellent) and the ICRs of “a” of HDI-Gerling Industrie Versicherung AG (HDI-Gerling Industrie) and its subsidiary, HDI-Gerling Welt Service AG, the leading non-life direct insurance operation within Talanx AG.

In addition Best has affirmed the ICR of “bbb+” and revised the outlook to positive from stable of Talanx AG as well as affirmed the debt rating of “bbb” on the €350 million [$455.5 million] junior subordinated fixed to floating rate notes, due 2025 issued by Talanx AG. The outlook for all the above FSRs is stable. The ratings of HDI-Gerling Lebensversicherung AG, a Group company, remain unchanged.

The positive outlook “reflects the successful completion of the Talanx AG initial public offering (IPO) on 1 October 2012,” Best explained. The Group managed to raise approximately €517 million [$673 million] in funding, assuming the full execution of the over allotted shares (the ‘greenshoe option’), as well as convert the €300 million [$390.5 million] Meiji Yasuda Life Insurance Company’s convertible bond into equity.

“The financial flexibility of the Group has been a concern in the past due to HDI V.a.G’s mutual status,” Best continued. However the rating agency said it “believes that the recent IPO constitutes a positive rating driver. The proceeds of the IPO are to be used to fund both organic and inorganic growth,” which Best said it would “monitor the success of these strategies over the next 12-36 months as well as their effect on the Group’s risk-adjusted capitalization, which continues to be excellent at half-year 2012.

“Upward rating actions could occur if the Group were to improve its risk-adjusted capitalization, operating technical performance and business profile within its target emerging markets. The successful integration of the recent Towarzystwo Ubezpieczeñ Europa SA (TU Europa Group) and Towarzystwo Ubezpieczen i Reasekuracji Warta S.A. (Warta Group) transactions may also put upward pressure on the ratings.

“Negative rating actions could occur if there were a significant deterioration in the Group’s risk-adjusted capitalization, possibly driven by large losses in its exposure to euro zone debt. Poor execution and integration of the Group’s mergers and acquisitions strategy may also put negative pressure on the ratings.”

Source: A.M. Best

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