Best Affirms HDI-Gerling Ratings; Revises Outlook to Stable

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-Gerling Industrie Versicherung AG. Best also affirmed the debt rating of “bbb+” on the €250 million [$367.7 million] subordinated fixed to floating rate notes due 2024 issued by the former Gerling-Konzern Allgemeine Versicherung AG (GKA), which is now merged into HGI.

Best also revised the outlook for the ICR and debt to stable from positive; the outlook for the FSR remains stable. (See IJ web site –]

“The ratings of HGI reflect both explicit and implicit support from its parent company, Talanx AG,” Best explained. “This rating factor has led to the change in the ICR outlook. The explicit support from Talanx AG comprises a profit and loss absorption agreement, although this agreement limits HGI’s ability to retain earnings.”

In addition Best indicated that the ratings reflect its “expectation that HGI’s risk-adjusted capitalization is likely to remain good in 2009, supported by its investment revaluation reserves and a reduction in investment risk following the partial sale of the company’s equity portfolio.”

The rating agency pointed out that in 2008 HDI-Gerling had produced a “strong underwriting performance.” Best therefore “anticipates that HGI’s underwriting result will remain resilient, despite marginal deterioration in 2009, as the favorable claims environment experienced in 2008 is unlikely to continue.

As a consequence, the company’s combined ratio is expected to increase to marginally above 95 percent, up from 93.8 percent in 2008. The company’s profit before tax is likely to fall to approximately €150 million [$220.5 million], down from €176 million [$259 million] in 2008. HGI benefited from a 12 percentage point improvement in its combined ratio in 2008 due to the favorable claims environment in property and liability lines.”

Best concluded that in its opinion, HGI’s “excellent business profile in the German industrial market has been strengthened by the integration of the former Gerling operations.” However, Best also warned that it “expects HGI’s gross premiums written to decline by approximately 5 percent to €2.3 – 2.4 billion [$3.383 to $3.53 billion] in 2009 due to decreasing premiums in recession-prone lines such as marine, aviation and liability. In 2008, gross premiums written decreased by approximately 10 percent to €2.5 billion [$3.675 billion], mainly due to portfolio transfers to other insurance entities within Talanx AG. Overall, HGI primarily writes insurance for German industrial clients.”

Source: A.M. Best –

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