A.M. Best Affirms Rating of International Insurance Co. of Hannover Ltd.

June 19, 2003

A.M. Best Co. has affirmed the financial strength rating of A (Excellent) of International Insurance Company of Hannover Limited (Inter-Hannover), a London-based general insurer and reinsurer. The rating outlook is stable.

The rating reflects the company’s strategic importance to its ultimate parent, Hannover Rueckversicherungs (Hannover Re) – currently rated A+ (Superior) and under review with negative implications – its excellent prospective capitalization and financial performance and very good business profile.

Strategic importance to its parent – Inter-Hannover is strategically important to Hannover Re as its only platform for developing program business in the United Kingdom and Europe. In addition, the company fronts direct business for its parent on a 100 percent basis.

Excellent prospective capitalisation – As a result of significant premium growth in recent years (40 percent increase in net premium income in 2002), capitalization on a risk-adjusted basis is no longer commensurate with the current rating. Maintenance of the rating is predicated on further funds being made available to return risk-adjusted capital to a level commensurate with the current A rating in the near term. A.M. Best also expects capitalization to grow through retained earnings in 2003 and 2004.

Excellent financial performance – The company has consistently generated pre-tax operating profits for the last seven years, although in 2002 there was a significant decline to a profit of GBP 517, 000 (USD 854, 084) (compared with GBP 9.6 million (USD 15.9 million) in 2001), largely a result of reserve strengthening. A.M. Best expects the company’s performance to be excellent in 2003 due to an improvement in the operating expense ratio from 23 percent in 2002 as the company benefits from a reduction in the duplication of core insurance company operations.

Very good business profile – Inter-Hannover has a very good business profile in the market for program business. The portfolio consists of London market and European insurance business (gross premiums of GBP119 million (USD 196.6 million) in 2002) developed through a number of carefully selected specialist underwriting agents. A portfolio of direct business (gross premiums of GBP 158 million (USD 261 million) in 2002) is also written on a 100 percent fronting basis for its parent company, Hannover Re.

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