The national scale claims paying ability (“CPA”) rating accorded to Hannover Reinsurance Africa Limited (“Hannover Re’) has been affirmed at AA+(ZA) (double A plus), with the rating outlook maintained at “Stable”. The reinsurer’s international CPA rating was maintained at A (single A), with a “Stable” outlook.
The rating is underpinned by the parental support provided by Hannover Re Germany (rated AA- on an international scale), by way of extensive retrocession cover, evident technical support, and a letter of credit. Hannover Re, together with strategic subsidiaries Compass and Lireas Holdings, represent the short term insurance arm of Hannover Re Africa. Hannover Re forms an integral part of the Hannover Group’s (the “Group”) African operations, leveraging off Group capacity and expertise in order to distribute capacity and efficiencies between the South African operating entities. Hannover Re is viewed as being strategically important to the Group, as a source of geographic diversification, as well as a channel for ceding profitable business to the parent. The strategic benefit of Hannover Re to the Group is underpinned by the significant cumulative profits transferred throughout the review period.
Market position and profile are viewed as key strengths, given Hannover Re’s position as a top tier player in the South African reinsurance market, as well as its strong brand and highly regarded management team. The reinsurer’s business model allows for participation at multiple levels of the insurance value chain, providing access to profitable niche business through its subsidiaries. Hannover Re has looked to supplement its core portfolio with specialist risk types, increasing its presence as a lead reinsurer.
Hannover Re has displayed a well-controlled capital management strategy throughout the review period, supported by an internal capital allocation model. The international and statutory solvency margins are forecast to remain at levels supportive of the reinsurer’s current rating. Sound capitalisation is complemented by a strong and entrenched risk management culture, comparatively low underwriting volatility and prudent reserving approach. Furthermore, Hannover Re has a low risk balance sheet, with cash-based non-strategic investments limiting capital exposure to market volatility, while underpinning sound liquidity metrics.
An offsetting factor is the internalised nature of the business model, which presents a degree of concentration risk in terms of both growth and claims experience, while open market activity is exposed to sustained competitive rates pressure. Note is also taken of the relatively high retention per risk and event. The international scale rating has pierced the sovereign risk ceiling due to the level of support provided by Hannover Re’s highly rated parent company, including substantial retrocession cover and the letter of credit.
Going forward, upward movement of the rating or outlook could develop should the international rating of the parent company change positively, or following sustainable and profitable premium growth and diversification, accompanied by the maintenance of strong solvency and liquidity metrics. Conversely, deterioration in the financial strength of the parent, or the financial support derived therefrom, may weaken Hannover Re’s rating or outlook.
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