Best Takes Various Rating Actions on QBE, Hannover Re and Praetorian

December 15, 2006

A.M. Best Co. reacted to yesterday’s announcement that Australia’s QBE has agreed to purchase Hannover Re’s Praetorian Financial Group, thereby taking over the German reinsurer’s North American operating units, with a series of bulletins.

Best’s financial strength rating of “A” (Excellent) and the issuer credit rating (ICR) of “a” on Hannover Rueckversicherung AG (Hannover Re) remain unchanged. Best put both the QBE Re Group’s ratings and Praetorian’s under review – with negative implications on the former and developing implications on the latter.

Commenting on Hannover Re, Best said it “views this transaction positively as it allows Hannover Re to concentrate on its core reinsurance business.” Best also indicated that it “believes that Hannover Re’s prospective consolidated risk-adjusted capitalization could strongly improve as result of the sales proceeds, the reduction in goodwill in the balance sheet and the reduction in premiums, although reinsurance recoverables are unlikely to be significantly reduced.”

The rating agency plans to discuss the implications of the sale with Hannover Re’s management, and learn “how it intends to redeploy the capital currently allocated to Praetorian and the scope of potential liabilities relating to the run-off of existing quota share reinsurance contracts with Praetorian.”

Best currently rates QBE Re Group – U.S. with an FSR of “A” (Excellent) and an ICR of “a”. Praetorian has an FSR of “A-” (Excellent) and an ICR of “a-“. Best said the ratings wiould remain under review pending its “review of the QBE Re transaction, integration plan and risk-adjusted capital position upon completion of the deal. The transaction is expected to close in the second quarter of 2007, subject to regulatory approval.”

Best indicated that it “expects a level of support to be provided by QBE Re’s ultimate parent, QBE Insurance Group Limited, to fund the transaction. Although a significant level of due diligence is still to be completed by A.M. Best, based on the information disclosed, it is likely that the ratings of QBE Re and Praetorian Financial Group will be affirmed.”

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