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FOR IMMEDIATE RELEASE
LONDON - DECEMBER 20, 2018 01:02 PM (EST)
AM Best has affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “aa” of Hannover Rueck SE (Hannover Re) (Germany) and its main subsidiaries. At the same time, AM Best has affirmed the Long-Term Issue Ratings (Long-Term IR) of the existing debt instruments issued by Hannover Re or by Hannover Finance (Luxembourg) S.A. (Luxembourg) and guaranteed by Hannover Re. The outlook of these Credit Ratings (ratings) is stable. (See below for a detailed listing of companies and ratings.)
The ratings reflect Hannover Re’s balance sheet strength, which AM Best categorises as strongest, its strong operating performance, very favourable business profile and very strong enterprise risk management (ERM).
Hannover Re’s balance sheet strength is underpinned by risk-adjusted capitalisation that is comfortably in excess of minimum requirements for the strongest assessment (as measured by Best’s Capital Adequacy Ratio), as well as its good internal capital generation, low-risk asset portfolio and moderate financial leverage maintained through the use of hybrid debt. Benefitting from good investment performance, effective use of retrocession and buffers built within its technical provisions, Hannover Re was able to generate positive earnings in 2017 and for the first nine months of 2018, despite the high catastrophe and man-made loss experience in both periods. As a result, the group’s risk-adjusted capitalisation remains relatively stable.
Hannover Re’s operating performance is strong, as demonstrated by a five-year weighted average non-life combined ratio of 95.9% and return on equity of 12.9% (2013-2017). The performance of its life business, although profitable overall, has been affected negatively in recent years by its legacy U.S. mortality portfolio, in which results have been below expectations. Following further rate increases undertaken by Hannover Re with regard to this portfolio and subsequent recaptures made by many of its cedants, the group is expected to report a one-off charge of up to USD 400 million for 2018, after which the performance of this business is anticipated to improve materially. For the first nine months of 2018, Hannover Re reported earnings before interest and taxes (EBIT) margin of 3.3% on its life and health book, compared with 4.3% reported for the same period of 2017.
As one of the largest global reinsurers, Hannover Re benefits from its established brand and diversification. In addition, the group’s very strong ERM, combined with its prudent use of retrocession and effective cost base, help it to mitigate operational volatility and provide some protection against high competition in the global reinsurance market.
The FSR of A+ (Superior) and the Long-Term ICR of “aa” have been affirmed with stable outlooks for Hannover Rueck SE and its following affiliates:
In addition, the following Long-Term IRs have been affirmed with a stable outlook:
Hannover Finance (Luxembourg) S.A.—(guaranteed by Hannover Rueck SE)
— “aa-” on the EUR 500 million 5.75% subordinated fixed to floating rate bond, due September 2040
— “aa-” on the EUR 500 million 5.00% subordinated fixed to floating rate bond, due June 2043
Hannover Rueck SE—
— “a+” on the EUR 500 million 3.375% undated junior subordinated fixed to floating rate bond
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
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