AM Best Europe - Rating Services (AM Best) has upgraded the financial strength rating (FSR) and issuer credit rating (ICR) of Hannover Re and its subsidiaries.
The rating agency said the outlook for all ratings has been revised to stable from positive.
In upgrading Hannover Re's FSR to A+ (Superior) from A (Excellent) and its ICR to "aa-" from "a+" Am Best said the change reflected Hannover Re's "consistently good earnings despite challenging catastrophe losses".
AM Best also praised the reinsurer's "excellent risk-adjusted capitalisation and enterprise risk management and an excellent business profile as one of the world's leading composite reinsurers".
Hannover Re's interim results in August indicated that a relatively benign first half loss experience helped the reinsurer turn its EUR293mn underwriting loss for the first half of 2011 into a EUR105mn profit in the first six months of 2012.
After booking first half (H1) major losses of EUR981mn last year, in the first half of 2012 Hannover Re is expecting some EUR132mn in relation to large claims.
The rating agency referenced the lesser impact of cat losses on Hannover Re's prospects, saying that it expects the reinsurer to maintain "excellent risk-adjusted capitalization" in 2012, supported by increased retained earnings from improved current year net income.
"Hannover Re's capital and surplus increased by 9.5 percent in 2011 on the back of solid retained earnings, unrealised gains, predominantly on the company's bond portfolio, and currency gains," said AM Best.
"The company continues to support risk-adjusted capitalisation through an extensive hybrid debt programme, with leverage and interest cover in line with the rating level."
AM Best said it expects Hannover Re to report an increased net income in 2012 of approximately EUR750mn after a benign cat experience at H1 2012.
It added that it expects the reinsurer's as-yet-unreported losses on US crop exposures and Hurricane Isaac to be "small on a net basis and comfortably within the group's large loss budget of EUR560mn", of which only EUR132mn had been used at H1 2012.
Hannover Re reported second quarter net losses from the May earthquakes in the Italian region of Emilia-Romagna of EUR61mn.
The US storms on 2-3 March are also estimated to have cost Hannover Re EUR18.4mn gross of reinsurance and EUR4.9mn net.
And the Costa Concordia incident provided the biggest gross claim for H1 2012 at EUR95.3mn. It was reduced to EUR37.3mn after retrocessional arrangements.
AM Best went on to say that Hannover Re's net income in 201, after minorities, of EUR606mn (down from EUR749mn in 2010) was "an excellent result considering the technical account was affected by EUR451mn of major losses above budget".
The reinsurer's non-life combined ratio increased to 104.3 percent in 2011 from 98.2 percent in 2010, on the back of EUR981mn of major losses.
However, the reinsurer's combined ratio improved from 110.3 percent in the first six months of last year to 96.8 percent in the same period of 2012.
Despite substantial 2011 cat losses, Hannover Re managed to renew its retrocession programme at competitive rates while providing comprehensive coverage.
The firm also has a low direct exposure to peripheral Eurozone debt of just EUR151mn million at H1 2012, according to AM Best.
However, said the rating agency, Hannover Re's financial flexibility "remains constrained by its dependence upon its majority shareholder, Talanx".
Overall, said AM Best, the reinsurer maintains "an excellent business position in both life and non-life global reinsurance markets".
Hannover Re reported at H1 2012 that property casualty gross written premium (GWP) has grown by 15.1 percent to take it just past the EUR4bn mark, while non-life operating profits almost trebled for the half-year.
AM Best said life and non-life GWP at H1 2012 increased by 14 percent to EUR6.9bn from EUR6.1bn, year on year.
It said the increase was driven by large rate increases on catastrophe-affected lines as well as an increase in motor, aviation and property lines of business.
The firm expects Hannover Re's premium income to increase by approximately 7 percent on a constant currency basis at year end to EUR12.9bn, adding that consolidated GWP increased to EUR12.1bn in 2011 from EUR11.4bn in 2010, driven by increased non-life rates after 2011 cats as well as steady life reinsurance growth.
However, AM Best said, negative rating actions could occur if the company suffered "a significant fall in risk-adjusted capitalisation, a weakening of its business profile or a sustained reduction in operating earnings". |
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