A.M. Best Affirms Ratings of HDI-Gerling Industrie Versicherung AG and Its Subsidiaries

LONDON--(BUSINESS WIRE)--

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating (FSR) of A (Excellent) and the issuer credit ratings (ICR) of “a” of HDI-Gerling Industrie Versicherung AG (HGI) and its rated subsidiary, HDI-Gerling Welt Service AG (HG WS). Concurrently, A.M. Best has affirmed the debt rating of “bbb+” on EUR 250 million subordinated fixed to floating rate notes, due 2024 issued by the former, Gerling-Konzern Allgemeine Versicherung AG (GKA), which is now merged into HGI. The outlook for all ratings remains stable. All companies are domiciled in Germany. (Please see also today's related press release on HDI Haftpflichtverband de Deutschen Industrie V.a.G. and Talanx AG, collectively the Group.)

The ratings of HGI and HG WS reflect both the explicit and implicit support from their parent company, Talanx AG. The explicit support from Talanx AG comprises a profit and loss absorption agreement, although this agreement limits HGI's ability to retain earnings.

The ratings also reflect A.M. Best's expectation that HGI's risk-adjusted capitalisation is likely to remain solid in 2012, supported by its investment revaluation reserves, which have appreciated in line with unrealised gains on the company's bond portfolio. HG WS' risk-adjusted capitalisation is likely to remain stable in 2012, supported by a profit and loss absorption agreement with HGI.

HGI continues to maintain an excellent business profile in the German industrial market, with a high penetration of DAX and EURO STOXX 50 companies. HG WS is integral to HGI as it acts as a hub for the company's international programme business, which has become strategically important as the company looks to expand its international reach. In 2011, HGI's gross premiums written (GPW) are likely to increase by 5% to approximately EUR 2,600 million driven by improved motor rates in Germany, increased property premiums in France and the contribution of Nassau Verzekering Maatschappi N.V., a professional indemnity and directors and officers' insurance company acquired in April 2011. HGI also has made a strategic acquisition of 25% of the share capital of PVI Holdings, in August 2011. This acquisition complements its globalisation strategy and expansion of its international network.

HGI's underwriting performance is expected to improve, which is reflected in a combined ratio of approximately 90% in 2011, following a combined ratio of 99% in 2010 (local GAAP figures), principally as a result of improved reserve development that offsets some significant catastrophe losses in the year, particularly in relation to the Japanese earthquake and tsunami. The company's profit before tax is likely to improve to approximately EUR 180 million, despite falling investment income as the interest rate environment continues to remain challenging. HG WS is expected to achieve an underwriting result of approximately EUR 0.5 million in 2011 purely reflecting the reinsurance commissions the company earns to cover management expenses.

Upward rating actions could occur if the Group improves its risk-adjusted capitalisation, operating technical performance and business profile within the Group's target emerging markets. An improvement in the Group's financial flexibility, through a possible initial public offering, may also put upward pressure on the ratings.

Negative rating actions could occur if there were a significant deterioration in the Group's risk-adjusted capitalisation, possibly driven by large losses in its exposure to eurozone debt. Poor execution and integration of the Group's mergers and acquisitions strategy may also put negative pressure on the ratings.

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Key criteria utilised include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; “Rating Members of Insurance Groups”; and “A.M. Best's Ratings & the Treatment of Debt”. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: A.M. Best Europe - Rating Services Limited Supplementary Disclosure.

A.M. Best Europe – Rating Services Limited is a subsidiary of A.M. Best Company. Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.