S&P Downgrades Hannover Re

Additionally, the New York-based rating agency also downgraded long-term subordinated debt ratings on the 350 million euros ($378 million) notes issued by Hannover Finance S.A. and the $400 million notes issued by Hannover Finance Inc. (both guaranteed by Hannover Re) to "A" from "A-plus."

S&P also lowered its counterparty credit and insurer financial strength ratings on Hannover Re' subsidiary Clarendon Insurance Group (CIG)–which includes Clarendon National Insurance Co., Clarendon America Insurance Co., and Redland Insurance Co.–to "A-plus" from "double-A-minus," with a "negative" outlook.

Hannover Re's 2002 financial results, which showed an improving profit picture, was as expected, said Steven Searby, an S&P credit analyst. "We had expected an improvement because the overall insurance industry obviously suffered enormously in 2001 because of 9/11," Mr. Searby told National Underwriter. "It's an inherently cyclical industry, and 2000 and 2001 represented the bottom of the cycle."

Mr. Searby said the company has concerns despite Hannover Re's strong operating performance and business position.

The real issue, he said, is the quality of capital, including the group's high exposure to reinsurance recoverables and constrained financial flexibility,.

One of S&P's questions, he said, is the ratio for Hannover Re's level of reinsurance recoverables versus its level of capital, which is higher than its peers.

Last week, S&P also lowered the counterparty credit and financial strength rating on the Insurance Corp. of Hannover (ICH), a unit of Hannover Re, to "triple-B-plus' from "A" with a "stable" outlook.

Hannover Re, based in Hannover, Germany, is the second-biggest German reinsurer behind Munich Re and is the fifth-largest in the world. Through subsidiaries, the company provides property-casualty, financial, life and health reinsurance products worldwide.