S&P puts Hannover Re on CreditWatch negative

Standard & Poor’s Ratings Services has placed its ‘AA-‘ long-term counterparty credit and insurer financial strength ratings on Hannover Rckversicherung-AG and its core entities on CreditWatch with negative implications. At the same time, Standard & Poor’s placed its ‘A+’ long-term counterparty credit and insurer financial strength ratings on Clarendon National Insurance Co. and three of its subsidiaries–Clarendon America Insurance Co., Redland Insurance Co., and Insurance Corp. of Hannover–on CreditWatch with negative implications. “The CreditWatch placement follows [a Nov.10] announcement by the Hannover Re group of its third-quarter results, which include a significant increase in the loss estimates relating to hurricanes Katrina and Rita of some 260 million (including 200 million bulk IBNR reserves for both storms), to 640 million [about Cdn$890 million],” said Standard & Poor’s credit analyst Simon Marshall. “The group has also indicated that it will report a break-even result for the year, largely because of the impact of Katrina and Rita, and of Hurricane Wilma, which is estimated to cost 150 million [Cdn$280 million] in the fourth quarter.” Standard & Poor’s says it will meet with Hannover Re’s management and expects to resolve the CreditWatch status within 90 days. Issues needing to be addressed include the ultimate cost of the hurricane season; how the loss reflects on group risk management, modeling, and pricing capabilities; and the exposure of earnings to natural catastrophes, despite the group’s apparent high diversity of risk by business line and geography, said the ratings agency.If, upon resolution of the CreditWatch placement, Standard & Poor’s decides to lower its ratings on all entities concerned, it is not expected that they will be lowered by more than one notch, the ratings agency said. “The circumstances that would result in a downgrade include material risk management and control deficiencies.”The ratings may be removed from CreditWatch and affirmed, however, if no significant management-related deficiencies are identified.