Inter Hannover rating placed on credit watch

Standard & Poor's Ratings Services has placed the 'A+' insurer financial strength and counterparty credit ratings on International Insurance Co. of Hannover (Inter Hannover) on CreditWatch with developing implications.

This action followed concerns about the prospective operating performance of the company's agency business. But S&P said it could be offset by the potential for increased support from the parent, Hannover Re, which could have a positive ratings impact.

S&P said it would resolve the CreditWatch placement when it was certain of the structure of the support provided.

"The concerns regarding the prospective operating performance stem from the agency business, which we expect to be less profitable than predicted," said S&P credit analyst Eoin Naughton.

Agency business involves partial delegation of underwriting authority to managing general agencies. In a related development, the company has plans to pass on most of its agency business to its parent through quota-share reinsurance.

Naughton said: "If these plans lead to a sufficiently large proportion of Inter Hannover's gross written premium being ceded to its parent, it would be considered core to Hannover Re. Therefore the ratings on it would be equalized with its parent. The planning stage for this change is not over yet; we will only take a positive rating action if Inter Hannover clearly indicates that the reinsurance arrangements are to proceed in the form it has outlined to Standard & Poor's.

"If the additional reinsurance arrangements are not enacted, or are changed to such an extent that the company is unlikely to be considered core, we will probably lower the ratings by one notch."

Inter Hannover is a wholly owned subsidiary of Hannover Re, and functions as a service company that provides fronting capacity for its parent's large commercial insurance risk and primary facultative business. Since 1999, Inter Hannover has also attempted to carve out a niche position in the European agency market. The company's stand-alone financial strength is primarily based on the agency business model, since almost all fronted business is ceded to the parent.