Best Assigns FSR to HDI Industrie Versicherung AG

August 10, 2005

A.M. Best Co. has assigned a financial strength rating of A (Excellent) and an issuer credit rating of “a” to HDI Industrie Versicherung AG (HDI Industrie) (Germany). The outlook on both ratings is stable.

The ratings reflect the enhancement received from the implicit support of HDI Industrie’s immediate parent company, Talanx AG, which is ultimately owned by the mutual insurer, HDI V.a.G. Other rating factors are HDI Industrie’s strong business profile in the German industrial insurance market, excellent operating performance despite a softening market and its excellent risk-adjusted capitalization.

Strong business profile–HDI Industrie remains one of the leading German industrial insurers. Following strong growth of 8% in 2004 mainly due to a shortage of capacity in liability and new business in property, A.M. Best expects gross premiums written to decline by 2% to approximately EUR 1.5 billion (USD 1.8 billion) in 2005 as premium rates have started to soften, especially in industrial property, and the company withdraws from inadequately priced business. The decline is partially alleviated by multi-year contracts written in 2004 and increased cross-selling activities leveraging HDI Industrie’s outstanding client relationships.

Excellent operating performance–A.M. Best expects HDI Industrie to increase earnings by approximately 50% to EUR 25 million (USD 31 million) (after transfer to equalization reserves), as the anticipated deterioration of the combined ratio by approximately 3% to 91% from rate reductions in property and higher catastrophe claims is compensated by higher investment income.

Excellent risk-adjusted capitalization–In A.M. Best’s opinion, HDI Industrie’s risk-adjusted capitalization is excellent, as a transfer to equalization reserves of approximately EUR 80 million (USD 99 million) offsets higher capital requirements due to an increase in net retention and an increase in liability reserves. An offsetting factor is HDI Industrie’s significant reliance on reinsurance despite an anticipated reduction in cession rates, which is partially alleviated by approximately 50% of reinsurance recoverables due from Hannover Re.

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