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    HNR1   DE0008402215

HANNOVER RÜCK SE

(HNR1)
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Real-time Estimate Tradegate  -  03:30 2022-10-05 pm EDT
160.30 EUR   +1.04%
09/30HANNOVER RUECKVERSICHERUNG AG : JP Morgan maintains a Buy rating
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09/28HANNOVER RUECKVERSICHERUNG AG : Credit Suisse gives a Neutral rating
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09/15HANNOVER RUECKVERSICHERUNG AG : UBS remains Neutral
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Fitch Affirms Ohio National's Ratings; Outlook Stable

08/12/2022 | 07:48am EDT

Fitch Ratings has Fitch Ratings has affirmed the 'A-' Insurer Financial Strength (IFS) ratings of Ohio National Life Insurance Company (ONLIC), Ohio National Life Assurance Corp. and National Security Life and Annuity Co.

At the same time Fitch has also affirmed the 'BBB' Issuer Default Rating (IDR) of Ohio National Financial Services (collectively ONFS). The Rating Outlook is Stable.

Key Rating Drivers

The affirmation of ONFS' ratings reflects the group's strong risk-adjusted capitalization, moderate business profile, muted but stable financial performance and conservative investment portfolio. Today's rating action also considers the company's recently completed demutualization following the acquisition of the company by Constellation Insurance, LP (Constellation) and the reinsurance of the company's whole life block to Hannover Re.

Fitch views ONFS' risk-adjusted capitalization as strong. Based on YE 2021 data, ONFS is expected to score in the 'Very Strong' category of Fitch's Prism capital model. Further supporting ONFS' strong capitalization is the company's reported NAIC risk-based capital (RBC) ratio of 630% at YE 2021, which is consistent with the 'aaa' category. Over the near term, Fitch expects that the company's capital position will improve following the reinsurance of ONFS' whole life business to Hannover Re and the injection of $500 million of capital from Constellation beginning in 2023.

Longer term, Fitch expects that capital may continue to benefit from the announced transaction with Constellation; however, uncertainty remains around how much of that improvement will be captured in the near term, and Fitch's view reflects uncertainty around management's risk appetite as Constellation continues to expand its insurance portfolio.

ONFS' GAAP-based financial leverage was 30% as of YE 2021 and consisted primarily of $310 million of surplus notes issued by Ohio National Life Insurance Co. (ONLIC) and $675 million of senior notes issued by ONFS. The company's financial leverage ratio at YE 2021 was in line with the prior year and is consistent with the company's rating level and similarly rated stock companies, while only moderately exceeding the industry average.

Fitch ranks ONFS' business profile in the moderate category and in line with that of the broader U.S. life insurance industry. The company's business profile is driven by its moderate competitive positioning, less favorable business risk profile and moderate diversification. Fitch views ONFS as well positioned in their primary markets, slightly offset by Fitch's view that the company remains exposed to market-related volatility and interest rate risks associated with the company's legacy block of VA.

On a reported basis, ONFS' financial results are materially below Fitch's guidelines for the 'a' category; however, operating based results more closely align with Fitch's expectations. ONFS' reported financial results can be somewhat volatile due to certain GAAP accounting practices, which treat some annuity policy guarantees as embedded derivatives. Additionally, changes in assumptions tied to VA guarantees have the potential to impact reserve requirements materially.

Over the near to intermediate term, financial performance may be somewhat pressured as premiums decline following the reinsurance transaction with Hannover Re, which may not be completely offset by growth in core life and annuity lines.

Fitch views ONFS to be well positioned from an asset risk perspective, and ONFS' exposure to asset classes that Fitch traditionally views as being riskier is materially lower than the broader industry. ONFS has a relatively modest exposure to below-investment-grade (BIG) bonds, and a very limited exposure to alternative asset classes, although the company does have moderate holdings in structured asset classes and commercial mortgages.

The company's outstanding surplus note is notched one below ONLIC's LT IDR for 'Below Average' recovery assumption and an additional notch for moderate deferral risk given the company's financial leverage as measured by surplus notes to statutory total adjusted capital (TAC) exceeds 15%.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

No material change in risk appetite and capital levels maintained in the 'Strong' category as measured by Fitch's Prism model following the demutualization;

A material reduction in the exposure to legacy variable annuities coupled with growth in the company's life and disability block in line with management's expectations;

The company's surplus notes may be upgraded one notch if financial leverage as measured by surplus notes to total adjusted capital at Ohio National Life Insurance Company falls below 15%.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

Unanticipated operational or economic disruptions, or a material adverse change in management's risk appetite as a result of the demutualization;

Adverse development with regards to the company's legacy block of variable annuities such that the company book a material reserve charge;

A drop in the company's Prism score to the low end of the 'Adequate' range;

A decline in Ohio National's core profitability such that the GAAP based ROE declines below 5%;

GAAP based fixed-charge coverage below 3x;

GAAP based financial leverage above 30%.

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.

(C) 2022 Electronic News Publishing, source ENP Newswire

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Financials
Sales 2022 31 747 M 31 299 M 31 299 M
Net income 2022 1 465 M 1 444 M 1 444 M
Net Debt 2022 4 466 M 4 403 M 4 403 M
P/E ratio 2022 13,0x
Yield 2022 3,86%
Capitalization 19 235 M 18 964 M 18 964 M
EV / Sales 2022 0,75x
EV / Sales 2023 0,70x
Nbr of Employees 3 435
Free-Float 49,8%
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Mean consensus OUTPERFORM
Number of Analysts 18
Last Close Price 158,65 €
Average target price 168,43 €
Spread / Average Target 6,16%
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Managers and Directors
Jean-Jacques Henchoz Chairman-Management Board
Clemens Jungsthöfel Chief Financial Officer
Torsten Leue Chairman-Supervisory Board
Thomas Fiedler Compliance Officer
Herbert K. Haas Deputy Chairman-Supervisory Board
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