Best Europe Affirms ‘A’ Ratings of HDI, Gerling, Talanx Companies

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and the issuer credit rating (ICR) of “a” of Germany’s 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 has also affirmed the FSR of ‘A’ (Excellent) and the ICR of “a” of HDI-Gerling Industrie Versicherung AG (HGI), the leading non-life direct insurance operation within Talanx AG, and HDI-Gerling Lebensversicherung AG (HG-LV), the leading life insurance operation within Talanx AG. The outlook for these ratings remains stable. Best also affirmed the ICR of “bbb+” of Talanx AG and the debt rating of “bbb” on the €350 million [$462.27 million] junior subordinated fixed to floating rate notes due 2025 issued by Talanx AG. The outlook for the ICR and debt rating of Talanx AG also remains stable. Best said it expects Talanx AG to “maintain good consolidated risk-adjusted capitalization in 2010 supported by solid earnings retention, albeit over 60 percent lower than 2009. Risk-adjusted capitalization was further enhanced in November 2010 by the issue of €300 million [$396.25 million] in subordinated debt to Japanese life insurer Meiji Yasuda Life. The debt has no final maturity and is convertible to shares at the market price at the time of a future Talanx initial public offering. These factors are partly offset by the group’s complex organizational structure.” Best also said it “expects 2010 consolidated earnings after tax and minorities to decrease to approximately €180 million [$237.65 million] from €545 million [$719.54] in 2009, primarily due to poorly performing German life insurance lines. The 2009 net profit of €545 million incorporated an increase in the net investment result of 78 percent due to strengthening in equity markets.” Best pointed out that Talanx AG “benefits from an excellent business profile. The group restructured in 2010, forming divisions covering corporate and industrial lines, non-life and life reinsurance, and German and international life and non-life personal lines business. Overall premium growth of approximately 7 percent is expected in 2010, with growth primarily driven by international lines (in particular Brazil) and non-life insurance (due to rate increases and new business gains). The German non-life and life personal lines business is expected to grow in future years as the new structure encourages greater efficiency and cross-selling opportunities.” Best also affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit rating (ICR) of “a” of HDI-Gerling Lebensversicherung AG, the group’s life insurance operations, with a stable outlook.

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and the issuer credit rating (ICR) of “a” of Germany’s HDI-Gerling Industrie Versicherung AG (HGI), as well as the debt rating of “bbb+” on the € 250 million [$330 million] subordinated fixed to floating rate notes due 2024 issued by the former Gerling-Konzern Allgemeine Versicherung AG (GKA) (Germany), which is now merged into HGI. The outlook for all of the ratings remains stable. The ratings of HGI continue to “reflect both explicit and implicit support from its parent company, Talanx AG,” Best noted. “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 the ratings reflect Best’s expectation that “HGI’s risk-adjusted capitalization is likely to remain solid in 2010, supported by its investment revaluation reserves, albeit offset by a modest increase in underwriting risk as a result of an expected increase in net premiums written. Underwriting performance is expected to improve, reflected in a combined ratio of approximately 95 percent in 2010, compared with 107.8 percent in 2009, which was affected by a significant exceptional commutation that added 7.9 percentage points to the pre-commutation combined ratio of 99.9 percent. The company’s profit before tax is likely to stay in line with 2009 at approximately €180 million [$237.65 million], with the improved underwriting performance offset by falling investment income as the interest rate environment continues to be challenging.” Best also indicated that HGI maintains “an excellent business profile in the German industrial market, with a high penetration of Dax and Euro Stoxx 50 companies.” However, Best also said it expects HGI’s gross premiums written “to decline by approximately 2 percent to €2.4-2.5 billion [$3.168 to $3.3 billion] in 2010, due to decreasing premiums in recession-prone lines such as property and marine. In 2009, gross premiums written increased by 1.5 percent to €2.5 billion as HGI expanded its increasingly important international business that now accounts for 30 percent of gross premiums written.”

A.M. Best Europe – Rating Services Limited has assigned a financial strength rating of ‘A’ (Excellent) and an issuer credit rating of “a” to Germany’s HDI-Gerling Welt Service AG (HGWS). The outlook for both ratings is stable. “HGWS is a holding company for non-European subsidiaries, a special purpose vehicle for some reinsurance contracts and a reinsurance platform for HGI’s international business,” Best explained that the ratings of HGWS “reflect its adequate risk-adjusted capitalization, stable operating performance and excellent business profile as a reinsurance platform for international business written within Talanx. The rating also reflects support from HGWS’s immediate parent company, HGI, and its ultimate parent holding company, Talanx AG. The ratings also consider Best’s expectation that HGWS’s risk-adjusted capitalization is likely to remain stable in 2010. In addition, the ratings acknowledge both explicit and implicit support from HGI. The implicit support derives from the integral part HGWS plays in HGI’s international business. The explicit support from HGI comprises a profit and loss absorption agreement, although this agreement limits HGWS’s ability to retain earnings.” Best also indicated that, as a reinsurance platform, “HGWS cedes 100 percent of written premium and earns reinsurance commissions to cover administrative expenses, so that the overall operating performance should be neutral. However, the company achieved an operating profit of €4.4 million [$5.813 million] in 2009, primarily as a result of a one-off dividend and repatriation of capital from a subsidiary. HGWS is likely to achieve a profit of approximately €500,000 [$660,326] in 2010, comprising a small contribution from investment income as well as reinsurance commissions. The company is integral to HGI’s international business as a reinsurance hub facilitating issuance of local policies for multi-national companies operating in different countries around the world. The company is expected to increase gross premium in 2010 to approximately €160 million [$211.3 million] from €146 million [$192.8 million] in 2009, as HGI continues to expand this business.”