S&P Puts Hannover Re, Clarendon on CreditWatch/Negative

November 11, 2005

While Fitch Ratings decided to affirm its “A+” ratings on Hannover Re and its subsidiaries (See following article), Standard & Poor’s Ratings Services has adopted a wait and see attitude.

S&P announced that it has placed its “AA-” long-term counterparty credit and insurer financial strength ratings on Hannover Re and its core entities on CreditWatch with negative implications. Concurrently, S&P placed its “A+” long-term counterparty credit and insurer financial strength ratings on Clarendon National Insurance Co. and three of its subsidiaries–Clarendon America Insurance Co., Redland Insurance Co., and Insurance Corp. of Hannover–on CreditWatch with negative implications.

“The CreditWatch placement follows today’s (See IJ Website Nov. 10) announcement by the Hannover Re group of its third-quarter results, which include a significant increase in the loss estimates relating to hurricanes Katrina and Rita of some €260 million [$304 million] (including €200 million [$234 million] bulk IBNR reserves for both storms), to €640 million [$748.3 million],” stated S&P credit analyst Simon Marshall.

“The group has also indicated that it will report a break-even result for the year, largely because of the impact of Katrina and Rita, and of Hurricane Wilma, which is estimated to cost €150 million [$175.4 million] in the fourth quarter,” he continued

S&P said it would soon meet with Hannover Re’s management, and “expects to resolve the CreditWatch status within 90 days.”

The rating agency noted that the issues, which will need to be addressed include: “the ultimate cost of the hurricane season; how the loss reflects on group risk management, modeling, and pricing capabilities; and the exposure of earnings to natural catastrophes, despite the group’s apparent high diversity of risk by business line and geography.”

S&P indicated that, if, after it has resolved the CreditWatch placement, it “decides to lower its ratings on all entities concerned, it is not expected that they will be lowered by more than one notch. The circumstances that would result in a downgrade include material risk management and control deficiencies. The ratings may be removed from CreditWatch and affirmed, however, if no significant management-related deficiencies are identified.”

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