Fitch Ratings has affirmed Hannover Rueck SE's (Hannover Re) and reinsurance subsidiary E+S Ruckversicherung AG's (E+S Re) Insurer Financial Strength (IFS) Ratings at 'AA-' (Very Strong) and Hannover Re's Long-Term Issuer Default Rating (IDR) at 'A+'.
The Outlooks are Stable.
The affirmation reflects Hannover Re's 'Favourable' company profile within the global reinsurance sector, and 'Very Strong' capitalisation and financial performance.
Key Rating Drivers
Very Strong Company Profile: Hannover Re is one of a small group of global reinsurance companies with the financial strength to offer a variety of underwriting capacity globally. Hannover Re's 'Favourable' company profile within the global reinsurance sector leads us to score its business profile at 'aa' under our credit-factor scoring guidelines. Hannover Re has a strong position in the property and casualty (P&C) reinsurance market and is strengthening its position in life and health reinsurance.
Very Strong Capitalisation: Fitch views Hannover Re's capitalisation as 'Very Strong', as measured by the agency's Prism Factor-Based Capital Model (Prism FBM) based on reported financials at end-2021. Its Solvency II (S2) ratio remained very strong at 232% at end-September 2022 (243% at end-2021) despite the new business strain on capital. Fitch does not expect a material weakening of Hannover Re's capital strength in the medium term, assuming a normal level of major losses and despite macro-economic challenges.
Strong Financial Leverage: Fitch estimates that Hannover Re's financial leverage ratio (FLR), as calculated by Fitch, will deteriorate to 27% by year-end 2022 (end-2021: 25%) as the company issued EUR750 million of subordinated notes in November 2022. However, Fitch expects Hannover Re to call an existing EUR500 million subordinated bond in June 2023, so the FLR is likely to improve again to below 25% by end-2023.
Very Strong Earnings: We assess Hannover Re's financial performance as 'Very Strong', which we expect to be maintained in 2022 and 2023 due to strong premium rates in P&C reinsurance and increase in market interest rates. This should offset increasing inflationary pressures on claims, more expensive retrocession cover and lower asset values.
Hannover Re reported stable in profits in 9M22 compared with 9M21, with an annualised net income return on equity (ROE) of 11.5% (2021: 10.8%). The P&C reinsurance segment reported a weaker combined ratio of 99.2% (9M21: 97.9%) due to a higher level of large losses, the impact of which was less pronounced than the sector average. Net income of life and health reinsurance improved to EUR369 million in 9M22 (9M21: EUR150 million), due to lower excess pandemic-related mortality and morbidity claims after retrocession. Fitch expects Covid-19 mortality claims to fall further in 2023.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An improvement in Fitch's assessment of company profile, combined with a sustained improvement of Fitch's Prism-FBM score to 'Extremely Strong'.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A sustained material decline in Fitch's Prism FBM score to below 'Very Strong'.
Sustained deterioration in the FLR to above 25%
A sustained decline in net income ROE to below 6% or sustained deterioration in the combined ratio to above 100%
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
RATING ACTIONS
Entity / Debt
Rating
Prior
Hannover Rueck SE
LT IDR
A+
Affirmed
A+
Ins Fin Str
AA-
Affirmed
AA-
subordinated
LT
A-
Affirmed
A-
senior unsecured
LT
A+
Affirmed
A+
E+S Ruckversicherung AG
Ins Fin Str
AA-
Affirmed
AA-
Hannover Finance (Luxembourg) SA
subordinated
LT
A-
Affirmed
A-
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VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
HANNOVER RE 
