S&P Raises Hannover Re Africa Ratings to ‘A’

November 21, 2008

Standard & Poor’s Ratings Services has raised its long-term counterparty credit and insurer financial strength ratings on South Africa-based non-life reinsurer Hannover Reinsurance Africa Ltd. to ‘A’ from ‘BBB+’. The outlook is stable.

“The upgrade reflects our revised view of Hannover Re Africa’s group status; we now consider it to be a strategically important member of the Hannover Re group,” explained credit analyst Matthew Day. “Previously, we viewed it as nonstrategically important. This change reflects the parental support that is embodied within the intragroup retrocession provided to the South African entity by its parent, and the close strategic, operational, and financial integration of Hannover Re Africa within the group.”

S&P said the “ratings also reflect the company’s stand-alone features, which include strong capitalization and good operating performance. These positives are offset, however, by the higher risk inherent in Hannover Re Africa’s delegated underwriting model, and the small absolute size of the competitive South African market.

“Hannover Re Africa is considered to be a strategically important member of the Hannover Re group. The company is one of the major reinsurers in the South African reinsurance market, although it is small in a global context. Since 2002, when the existing management team took charge, Hannover Re Africa has successfully reconfigured its underwriting profile and begun to build a track record of consistently good earnings.

“Hannover Re Africa also benefits from its membership of the broader Hannover Re group. This is most tangibly reflected in the robust level of parental support embodied within the intragroup reinsurance provided to the South African entity by its ultimate parent.”

S&P said the stable outlook reflects its expectation that “the combined ratio will remain below 100 percent in 2009 and 2010. In addition, we expect that the company will continue to benefit from the extensive reinsurance program provided by the Hannover Re group, and its capitalization is expected to remain at least good.

“Further upward movement in the ratings is limited by the ‘A’ transfer and convertibility (T&C) assessment on the Republic of South Africa. Downward rating action could occur if the T&C assessment on South Africa were to be lowered, or if the company ceased to be considered strategically important to the group–for example, if the strength of the current explicit parent support were to diminish.”

Source: Standard & Poor’s – www.standardandpoors.com

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