S&P’s takes Hannover Re off CreditWatch

Standard & Poor’s Ratings Services affirmed its long-term counterparty credit and insurer financial strength ratings on Hannover Rckversicherung-AG and its core entities – collectively Hannover Re – and removed them from CreditWatch, where they had been placed with negative implications on Nov. 10, 2005.
At the same time, S&P’s affirmed its long-term counterparty credit and insurer financial strength ratings on Clarendon National Insurance Co. and three of its subsidiaries Clarendon America Insurance Co., Redland Insurance Co., and Insurance Corp. of Hannover and on International Insurance Co. of Hannover Ltd., and removed all the ratings from CreditWatch, where they had also been placed with negative implications on Nov. 10, 2005.
The outlook on all entities is negative.
The CreditWatch placement on Nov. 10, 2005, followed the announcement by Hannover Re of its third-quarter results, which included a significant increase in the loss estimates relating to Hurricanes Katrina and Rita. According to S&P, this news raised concerns over:
The ultimate cost of the hurricane season.
The group’s risk-management, modeling, and pricing capabilities;
The exposure of earnings to natural catastrophes, despite the group’s apparent high diversity of risk by business line and geography.
“Following discussions with management, we consider the group’s risk-management, modeling, and pricing capabilities to be sound,” said S&P credit analyst Simon Marshall. “The exposure of earnings to natural catastrophes is, however, higher than previously assessed and, accordingly, earnings are more volatile and less diversified than previously thought,” he added.
The ratings on Hannover Re reflect the group’s effective management and strategy, very strong operating performance, very strong competitive position, and strong capitalization, S&P announced.
“The negative outlook is driven by uncertainties over the benefits deriving from the diversified activities of the group,” said Marshall. “Specifically, there are concerns over the successful restructuring and profitability of the financial reinsurance and specialty units. The negative outlook is also driven by doubts over the group’s ability to purchase adequate reinsurance protection at economic prices, following the high losses of Hannover Re’s reinsurers relating to the 2005 hurricane season.”
The combined ratio for financial reinsurance business, including interest on funds withheld, is projected to be about 98% in 2005 and 95% in 2006. Gross premiums written in this segment are expected to have fallen by 25% in 2005, but to fall by no more than 5% in 2006.