Best Affirms Rating, Revises Outlook to Stable for HDI, Talanx AG

September 25, 2009

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and the issuer credit rating (ICR) of “a” of German insurer HDI Haftpflichtverband der Deutschen Industrie V.a.G. (HDI V.a.G.), the ultimate mutual parent company of Talanx AG, which in turn is the intermediate management holding company for all HDI V.a.G. companies.

Best also affirmed the FSR of ‘A’ (Excellent) and the ICR of “a” of HDI-Gerling Industrie Versicherung AG , the leading non-life direct insurance operation within Talanx AG, and of its subsidiary, HDI-Gerling America Insurance Company of New York. The outlook for the ICRs has been revised to stable from positive, whereas the outlook for the FSRs remains stable.

In addition Best affirmed the ICR of “bbb+” of Talanx AG and upgraded the debt rating to “bbb” from “bbb-” on the €350 million [$514 million] junior subordinated fixed to floating rate notes due 2025 issued by Talanx AG. The debt upgrade was made to align the rating with Best’s current treatment of subordinated debt issues. The outlook for the ICR and debt rating of Talanx AG has been revised to stable from positive. (See IJ web site –

Best said the change in the ICR and debt rating outlook reflects its “view that expected operating results of the business segments within Talanx AG no longer support upward pressure on the current rating levels.”

Best added that it “expects Talanx AG’s consolidated risk-adjusted capitalization to remain good in 2009 supported by solid earnings retention. Despite the impact of unrealized losses and impairments and the decrease in life value of in force, risk-adjusted capitalization in 2008 remained stable, mainly due to support from investment revaluation reserves.

“In addition, Talanx AG has continued to improve its enterprise risk management, including the introduction of a group-wide internal capital model. These factors are partly offset by the group’s current complex organizational structure.”

Best is also expecting 2009 consolidated earnings after tax and minorities to improve to approximately €400 – 450 million [$587.5 million to $661 million] from €187 million [$275 million] in 2008, against the background of a recovering net investment result. In 2008, consolidated earnings were adversely affected by a 40 percent fall in the net investment result to €1.6 billion [$2.35 billion].

Best indicated that in its opinion “Talanx AG benefits from an excellent business profile, which is broadly diversified between primary non-life, primary life and reinsurance operations. In addition, Talanx AG has successfully integrated the former Gerling operations.” Best also anticipates that gross written premiums (GWP) in primary non-life insurance will decrease to €5.5 – 5.6 billion [$8.085 billion] from €5.9 billion [$8.68 billion] in 2008 “due to intense competition in motor lines and the deterioration of the economic environment, which is likely to adversely affect industrial lines.”

Primary life insurance GWP is likely to remain stable at €4.7 billion [$6.916 billion] despite the absence of a further contribution from Riester step ups in Germany and the impact of the deteriorating economic environment on disposable income. The expected decrease in total primary premiums is likely to be more than offset by GWP growth from reinsurance, resulting in total consolidated GWP growth of 5 percent to approximately €20 billion {$29.43 billion] in 2009.

Source: A.M. Best –

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