A.M. Best Places Hannover Re, Clarendon Ratings Under Review On Announcement of Acquisition

Business Wire, August 28, 1998

OLDWICK, N.J.--(BUSINESS WIRE)--Aug. 28, 1998--A.M. Best Co. today placed the "A " (Superior) rating of Hannover Re, Germany, together with the "A " (Superior) ratings of E S Rueckversicherungs AG, Hannover Re (Ireland) Ltd. and E S Reinsurance (Ireland) Ltd., under review with developing implications. A.M. Best has also placed the "A-" (Excellent) rating of Clarendon Insurance Group, New York, under review with positive implications.

These actions follow Hannover Re's announcement that it has agreed in principle to acquire Clarendon, a leading specialty program underwriter, for $500 million. The acquisition will considerably increase Hannover Re's insurance presence in the U.S., and provide product diversification and potentially greater earnings stability to the entire group.

In recent years, Clarendon has exhibited a strong track record of profitable growth, as evidenced by a five-year average premium growth of 20 to 30% and combined ratio of 91. Hannover Re's ratings will remain under review until A.M. Best reviews final financing details and meets with Hannover Re management to discuss its evolving U.S. strategy, integration plans for Clarendon, and growth expectations. The acquisition is expected to close by year-end and is subject to regulatory approvals.

Clarendon's positive under review status reflects Hannover Re's considerable financial flexibility and A.M. Best's expectation that the new owner is committed to contributing additional capital to support the group's growth initiatives, pay off bank debt at the holding company, and reduce the leverage on its balance sheet to levels more in line with A.M. Best's capital standards for Excellent-rated insurers. This capital commitment, along with the curtailment of dividends over the near term, will address Clarendon's historically high underwriting leverage position, which had prevented the group from being upgraded in the past. Historically, Clarendon's surplus growth was constrained by heavier dividends required to service debt at the parent level. Further, its prior ownership structure lacked the financial flexibility afforded by Hannover Re.

A.M. Best expects Clarendon's top management to remain intact, the group's operations to remain autonomous, and its strong earnings trends to be sustained, barring potential one-time balance sheet adjustments as part of the transaction close. A.M. Best intends to validate these expectations and ensure that Clarendon's strong relationship with its producers, brokers and reinsurers are not disrupted.

A.M. Best Co., established in 1899, is America's oldest and most widely recognized insurance rating and information source. For more information, visit A.M. Best's Web site at http://www.ambest.com.

    CONTACT: Jeffrey Dunsavage
              908/439-2200, ext. 5618
              dunsavj@ambest.com