S&P Affirms Hannover Re’s Ratings, But Revises Outlook to Negative

Standard & Poor’s Ratings Services has revised its outlook on German reinsurer Hannover Rueckversicherung AG and its subsidiaries (collectively Hannover Re) to negative from stable. S&P also affirmed the ‘AA-‘ long-term counterparty credit and insurer financial strength ratings on Hannover Re’s core entities.

“The outlook revision principally reflects what we see as Hannover Re’s somewhat constrained financial flexibility in a difficult capital market environment, the potential for increased earnings volatility in the non-life segment owing to the group’s increased net retention of catastrophe risk, and a current lack of track record of successful execution by the new executive team,” explained credit analyst Hiltrud Besgen.

She added however: “We believe that strong enterprise risk management, and a very strong competitive position, combined with effective management strategies continue to support the rating.”

S&P’s analysis pointed out that Hannover Re’s “somewhat constrained financial flexibility” has, in our view, already manifested itself through the group’s inability to fully place its securitization transactions K6 and Kepler, which in the past provided substantial capacity support for nonproportional reinsurance treaties mainly in property catastrophe lines. We also believe that Hannover Re’s somewhat limited access to funding reduces its strategic flexibility, thereby partly constraining its ability to capitalize on opportunities as they arise.

Furthermore, we see potential for diminishing capital adequacy, although this is still considered very strong, and only moderate capital quality.

The negative outlook reflects our expectation that, in the current difficult environment, Hannover Re will be challenged to demonstrate a very strong financial and earnings profile.

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