FRANKFURT, Germany, Dec. 21 /PRNewswire/ -- Standard & Poor's today
lowered its long-term counterparty credit and insurer financial strength
ratings on Hannover Ruckversicherungs AG (Hannover Re), E+S Ruckversicherungs
AG, International Insurance Co. of Hannover Ltd. (IICH), E+S Reinsurance
(Ireland) Ltd., and Hannover Reinsurance (Ireland) Ltd.--all core entities of
the German Hannover Re group--to double-'A' from double-'A'-plus.
The ratings on IICH remain on CreditWatch with negative implications
pending a full review of the company's stand-alone financial strength in light
of its new strategic focus to become the Hannover Re group's carrier for
European program business. All other ratings were removed from CreditWatch,
where they had been placed on Sept. 20, 2001, as a result of the Hannover Re
group's exposure to losses related to the World Trade Center disaster and the
likely adverse impact on capital. The outlook is stable.
Standard & Poor's also lowered its long-term debt ratings on the
subordinated debt issues of Hannover Finance (Luxembourg) S.A. and Hannover
Finance Inc. to single-'A'-plus from double-'A'-minus.
The rating actions reflect the Hannover Re group's diminished financial
flexibility, concerns about the quality of total adjusted capital, and a
reduction in the group's risk-based capitalization beyond Standard & Poor's
expectations that results from losses related to the terrorist attacks in New
York. Positive rating factors are the group's very strong global business
position, strong management team, and strong earnings performance.
Major rating factors:
-- Financial flexibility is constrained because Hannover Re has fully
exhausted Standard & Poor's tolerance limit for hybrid capital.
Interest coverage is aggressive in relation to the ratings at
3.2 times (x) (increasing to 6.2x when including capital gains),
leaving very little room to serve any further debt or hybrid capital.
-- Hannover Re's 2001 capital adequacy ratio at the group level is
forecast to be in the low double-'A' range based on estimated
euro 400 million pretax net losses from the World Trade Center disaster
and taking into account the EUR194 million increase in stockholder
capital announced in November 2001. Although at this level capital
adequacy remains very strong, Hannover Re is likely to require further
capital to fund the group's business projections for strong growth into
2003, while maintaining capital at a level consistent with the current
ratings. Ultimately this could challenge Hannover Re's ability to
compete effectively against peers with larger capital structures in the
current upswing of the reinsurance market.
-- Quality of total adjusted capital (according to Standard & Poor's
risk-based capital model) is satisfactory, but relies heavily on hybrid
capital, the embedded value of the life portfolio, and the estimated
time value of money inherent in the group's loss reserves.
-- Management has established a successful track record of deriving strong
earnings through a disciplined and model-driven approach toward risk
management and capital allocation strategies, thereby outperforming
many of its larger peers.
Hannover Re is a leading player in the global reinsurance market, ranking
fifth among professional reinsurance groups worldwide based on net premiums
written of $4.99 billion in 2000.
Hannover Re's operating performance has been consistently strong and
significantly less volatile than that of its peers, with the group focusing on
disciplined underwriting policies tied to specific combined ratios and ROE by
line of business, and risk management practices. September 11-related losses
will fully absorb the group's 2001 pretax income, translating into a
break-even result in 2001.
OUTLOOK: STABLE
Substantial premium rate increases will underpin Hannover Re's likely
solid profitability in 2002 and 2003, with return on reported U.S. GAAP equity
expected to exceed 15%. Risk-based capitalization is expected to remain in the
double-'A' category, although it will be at a lower level than historically.
Standard & Poor's expects management to take further steps to enhance its
balance sheet strength over the next two years, which will improve the quality
of capital and increase the group's flexibility to grow its business, retain
more risk, and compensate for unforeseen losses.
SOURCE Standard & Poor's
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Related links:
http://www.standardandpoors.com/ratings
CONTACT:
Karin Clemens, Frankfurt, +49-69-138709-7356,
or Christian Dinesen, London, +44-20-7847-7043, both of Standard
& Poor's
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