Hannover ratings placed on review for possible upgrade

Moody's has placed the financial strength ratings and subordinated debt rating on members of the Hannover Re Group on review for a possible upgrade.

The rating agency said that the rating review follows the continued improvement in Hannover Re's operating leverage, including its exposure to reinsurance recoverables, together with the maintenance of a strong business franchise and a relatively diverse book of business.

Hannover Reinsurance Company (Hannover Re) is currently rated A3 for insurance financial strength (IFSR), while its subsidiaries E+S Rückversicherungs AG (E+S Re) and Hannover Finance Inc. are respectively rated A3 for insurance financial strength, and Baa2 for subordinated debt.

Moody's elaborated that Hannover Re's gross underwriting leverage, whilst still high compared to peers, has continued to improve standing at 7.6x at YE2006 compared to 9.3x at YE05.

Furthermore, the level of reinsurance recoverables and goodwill as a percentage of equity has meaningfully reduced to around 77% at Eur9m in 2007 compared to around 160% at YE05.

The rating agency noted that around one third of the recoverables are collateralized, and that during 2007 Hannover Re has securitised recoverables worth around Eur1bn.

Moody's also commented that ROE performance for 2006 and 2007 to-date has been strong in contrast to the around 2% recorded in 2005, although unleveraged profitability compares less favourably with peers.

The rating agency said: "Hannover Re continues to be one of the leading global reinsurers with a valuable and stable franchise, occupying strong positions in the P&C Reinsurance, Life Reinsurance and Financial Reinsurance markets."

It added that it considered the company's book of reinsurance business to be "relatively diverse with a meaningful amount of generally non-correlating and less volatile Life & Health reinsurance business."

The rating agency said that its rating review would concentrate in particular on Hannover Re's year end 2007 performance, business profile, and operating leverage including reinsurance recoverables. In the absence of any unexpected material adverse developments from the 2007 results, Moody's said it would likely upgrade Hannover Re's IFSR to A2 and its subordinated debt rating to Baa1.

Hannover Re, based in Hannover, Germany, reported shareholders' equity of around Eur3.8bn and gross written premiums of around Eur6.4bn for the nine months ended September 30, 2007.