Best Affirms Hannover Re (Ireland) ‘A’ Ratings

April 19, 2007

A.M. Best Co. has affirmed the financial strength rating of “A” (Excellent) and the issuer credit rating of “a” of Hannover Reinsurance (Ireland) Limited (HRI) and its subsidiaries, E&S Reinsurance (Ireland) Limited (ESI) and Hannover Reinsurance (Dublin) Limited (HRD). The outlook for all ratings remains stable.

The ratings “reflect the rating enhancement received from implicit support by the parent company,” Germany’s Hannover Rueckversicherung AG (Hannover Re), said Best. “Other rating factors include HRI’s excellent risk-adjusted capitalization, excellent earnings in 2006 and excellent business profile following the portfolio transfer from ESI and HRD. An offsetting factor is the volatility of the financial reinsurance market. The ratings of ESI and HRD factor the explicit support provided by HRI.”

Best said it “expects HRI’s risk-adjusted capitalization to be maintained at an excellent level through an increase of retained earnings. As part of the restructuring process, retained earnings and share capital for ESI and HRD will be dividended up to HRI during 2007.”

However, Best also noted that “HRI has become fully liable for all obligations of both entities, which were re-registered as unlimited companies, and most reinsurance contracts have been commuted or novated to HRI. All outstanding contracts that were not commuted or novated are being run off by ESI and HRD, respectively. In A.M. Best’s opinion, the new structure offers the potential for reduced operating costs and a simplification of the legal structure.”

The rating agency said it “anticipates that HRI’s excellent return on premium remained stable at 9.4 percent in 2006, resulting in a consolidated net income of €62 million ($83 million) for 2006 (compared with €41.6 million ($56 million) in 2005), driven by a change in the business mix and resulting in lower investment returns, which offset improvements in the underwriting results. However, underwriting results remain negative but are compensated by investment returns as a substantial part of the business remains low risk transfer or financing business (which is a typical feature of financial reinsurance).

“HRI has improved its business profile significantly through strong growth in consolidated gross premiums written by approximately 28 percent to €868 million ($1.2 billion) in 2006. A.M. Best believes that the company benefited from the withdrawal of several competitors from financial reinsurance, which compensates for the overall decreasing demand in this segment.”

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