Announcements

GCR affirms Hannover Reinsurance Africa Limited rating of AAA(ZA); Outlook Stable.

Johannesburg, 23 July 2014 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Hannover Reinsurance Africa Limited of AAA(ZA); with the outlook accorded as Stable. Furthermore, Global Credit Ratings has affirmed the international scale claims paying ability rating assigned to Hannover Reinsurance Africa Limited of A-; with the outlook accorded as Negative.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to Hannover Reinsurance Africa Limited (“Hannover Re Africa”) based on the following key criteria:

Hannover Re Africa has been operating in South Africa for more than 50 years. The reinsurer is 100% owned by Hannover Reinsurance Group Africa Pty Limited (“Hannover Re Group Africa”), which in turn is wholly owned by Hannover Rück SE (“Hannover Rück”). Hannover Rück currently carries a AA- S&P financial strength rating. Hannover Re Africa owns 51% of investment holding company Lireas Holdings Pty Limited (“Lireas Holdings”) and 100% of Compass Insurance Company Limited (“Compass”).

Hannover Re Africa’s rating is enhanced by its strategic importance to Hannover Rück. This is premised on strong operational integration, including branding, mandates, and strategic targets, together with the substantial cumulative profits transferred through the review period. Cognisance is also taken of the technical and retrocession support from the Hannover Re Group, as well as capital injections at the underlying subsidiary level.

Competitive positioning is viewed as a key rating strength. Hannover Re Africa is a top tier player in the South African reinsurance market, with a strong brand and favourable market reputation. GCR’s view on management and corporate strategy enhances the assessment of the reinsurer’s solid business profile. The reinsurer’s business model provides it with access to profitable niche business, which together with participation on specialist risks in the open market, has translated into sustained underwriting profitability over the review period. Considering the reinsurer’s historical performance through the cycle and the challenging operating environment in recent years, GCR considers this to be sustainable going forward.

Hannover Re Africa has maintained capital adequacy levels that are commensurate with the current rating. Solvency measures are complemented by an entrenched risk management framework, and the company is developing an internal capital management model (not for regulatory approval), which is aligned with the international group’s risk management policies. Furthermore, the conservative investment composition is supportive of strong liquidity metrics and a low degree of capital risk.

Cognisance is, however, taken of the high net risk retention, which equates to more than 10% of capital. In addition, an offsetting factor is the internalised nature of the business model, which implies heightened concentration risk in terms of both revenue generation and underwriting profitability, while also exposing the capital base to potential systemic risk.

Both the national and international scale ratings are at their respective rating ceilings. Negative rating action could arise as a result of a sustained weakening in the reinsurer’s business profile and associated technical profitability, which reduces the degree of strategic alignment and associated implied support from Hannover Rück. The negative outlook accorded to the international rating considers a potential downgrade of South Africa’s sovereign rating in the near term, which would lower the ceiling applicable to Hannover Re Africa’s international rating.

For a detailed glossary of terms utilised in this announcement please click here

NATIONAL SCALE RATINGS HISTORY INTERNATIONAL SCALE RATING HISTORY
Initial rating (Nov/2007) Initial rating (Nov/2007)
Claims paying ability: AA+(ZA) Claims paying ability: A-
Outlook: Stable Outlook: Stable
Last rating (Aug/2013) Last rating (Aug/2013)
Claims paying ability: AAA(ZA) Claims paying ability: A-
Outlook: Stable Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst
Susan Hawthorne
Analyst
(011) 784-1771
susanh@globalratings.net

Committee Chairperson
Marc Chadwick
Sector Head: Insurance
(011) 784-1771
chadwick@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Insurance Companies (July 2013)
Hannover Re Africa rating reports 2007-2013.
RSA Short Term Insurance Bulletin 2001-2013.

RATING LIMITATIONS AND DISCLAIMERS

ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.

SALIENT FEATURES OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.

Hannover Reinsurance Africa Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The credit rating/s has been disclosed to Hannover Reinsurance Africa Limited with no contestation of the rating.

The information received from Hannover Reinsurance Africa Limited and other reliable third parties to accord the credit rating(s) included the latest available audited annual financial statements to December 2013 (plus four years of comparative numbers), full year detailed budgeted financial statements to December 2014, year to date management accounts to March 2014, the 2014 retrocession programme summary, qualitative and quantitative statutory returns to December 2013, quarterly statutory return to March 2014, company and group risk management documentation, and other relevant documents.

The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.

GCR affirms Hannover Reinsurance Africa Limited rating of AAA(ZA); Outlook Stable.

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