AM Best describes new entity as ‘natural extension’ of parent company’s life re network
AM Best has assigned a financial strength rating (FSR) of A (Excellent) and an issuer credit rating (ICR) of “a+” to Hannover Life Reassurance Bermuda Limited (HLR Bermuda). The outlook for both ratings is positive, in line with that of its parent company, Hannover Rueckversicherung AG (Hannover Re) (Germany).
The ratings reflect AM Best’s view that the recently formed HLR Bermuda is a natural extension of Hannover Re’s life reinsurance network; thus, it is integral to Hannover Re’s expansion strategy in this segment. Other factors include an excellent initial capitalisation and experienced management team.
HLR Bermuda is Hannover Re’s youngest subsidiary, having commenced its business operations in October 2007. HLR Bermuda was set up to enable Hannover Re to offer its clients additional capacity in a well established favourable business environment, in particular for financing business, which AM Best expects to comprise the majority of HLR Bermuda’s portfolio. In addition, HLR Bermuda is planning to write traditional life reinsurance, as well as longevity risks, including bulk pension buy-outs.
AM Best believes that HLR Bermuda will benefit from Hannover Re’s global life reinsurance franchise and network. An offsetting factor is the potential negative effect on business growth prospects in respect of the global economic slowdown expected in some of HLR Bermuda’s key markets.
The company has established a small management team comprised of four people formerly working for Hannover Life Reassurance (Ireland) Ltd, (HLR
Ireland) and led by Colin Rainier, who founded and led HLR Ireland for eight years. AM Best believes that HLR Bermuda’s management team has the experience to develop the company into a successful organisation.
AM Best also believes that HLR Bermuda is well capitalised, with EUR 120 million of paid up capital provided initially by Hannover Re. AM Best expects a further improvement in risk-adjusted capitalisation over the next few years from retained earnings despite a strong growth forecast by HLR Bermuda. An offsetting factor is the company’s dependence on a high proportion of deferred acquisition costs (DAC).
HLR Bermuda’s pricing guidelines are in line with that of its parent company. Notwithstanding this, margins for financing reinsurance are generally lower than for traditional mortality risk, despite the fact that Hannover Re has been able to improve returns in recent years.