Best Affirms ‘A+’ Ratings of Hannover Re and Subs; Outlook Stable

September 28, 2015

A.M. Best has affirmed the financial strength rating (FSR) of ‘A+’ (Superior) and the issuer credit ratings (ICR) of “aa-” of Germany’s Hannover Rueck SE (Hannover Re) and its main subsidiaries.

Best also affirmed the issuer ratings of the existing debt instruments issued by Hannover Re or by Hannover Finance (Luxembourg) S.A. and guaranteed by Hannover Re. The outlook for all of the above ratings is stable.

Best said: “The rating affirmations reflect Hannover Re’s excellent consolidated risk-adjusted capitalization, highly diversified earnings and superior business profile.” As partial offsetting factors Best cited Hannover Re’s “exposure to deteriorating conditions in the global reinsurance market and the underperformance of some segments of its life and health portfolio. The ratings of Hannover Re have been extended to its main operating subsidiaries, which all maintain adequate levels of stand-alone risk-adjusted capitalization.”

The report also noted, however that “Hannover Re’s excellent consolidated risk-adjusted capitalization continues to be supported by the group’s strong earnings generation, access to the traditional and alternative retrocession markets and an extensive hybrid debt program, with financial leverage and interest coverage ratios remaining well within the tolerance for its ratings.

“The group’s highly diversified profile and robust enterprise risk management support the resilience and stability of its operating results, in spite of the intense competitive conditions, low interest rates and economic challenges it faces in some markets. For the first half of 2015, the group reported a solid non-life combined ratio of 95.4 percent (first half of 2014: 95.0 percent), partly reflecting the low level of catastrophic activity.

“Additionally, the life and health account produced a healthy EBIT margin (relative to net earned premium) of 6.4 percent, delivering on Hannover Re’s internal target. Best’s report noted, however that the “mortality and morbidity segments of the life and health account remain areas of underperformance for Hannover Re. This largely reflects the higher than expected levels of claims experience from the U.S. mortality account.

“Although management has taken corrective actions to improve profitability, the performance of the mortality and morbidity segments fails to consistently meet expectations, as demonstrated by their combined EBIT margin of 2.7 percent for the first half of the year relative to the group’s internal target of 6.0 percent. Nonetheless, the market consistent embedded value of the life portfolio continues to develop positively, with a 16 percent rise in reported earnings to €4.3 billion [$4.81 billion] during 2014, supported by growth in the value of new and in-force business derived from these segments.

“As the third largest global reinsurer, Hannover Re benefits from its highly diversified profile (by product, service offerings and geographic spread) and its lean and efficient infrastructure, which supports its relatively low expense base, allowing the group to focus on selective underwriting in the intense competitive environment. Although global reinsurance conditions continue to deteriorate, A.M. Best believes that Hannover Re’s superior business profile will likely limit any downside pressures.

The FSR of ‘A+’ (Superior) and the ICRs of “aa-” have been affirmed for Hannover Rueck SE and its following subsidiaries:
· E+S Rueckversicherung AG
· Hannover Re (Bermuda) Ltd
· Hannover Re (Ireland) Limited
· Hannover Life Reassurance Bermuda Limited
· International Insurance Company of Hannover SE

The following issue ratings have been affirmed:
Hannover Finance (Luxembourg) S.A.—(guaranteed by Hannover Rueck SE)
— “a+” on the €500 million [$559 million] 5.75 percent subordinated fixed to floating rate bond, due September 2040
— “a+” on the €500 million 5.00 percent subordinated fixed to floating rate bond, due June 2043

The following issue rating has been affirmed:
Hannover Rueck SE
— “a” on the EUR 500 million 3.375 percent undated junior subordinated fixed to floating rate bond

Source: A.M. Best

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