A.M. Best Affirms Ratings of Hannover Re; Removes Ratings From Under Review.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and the issuer credit rating (ICR) of "a" of Hannover Rueckversicherung AG (Hannover Re) (Germany) and its rated subsidiaries. Concurrently, A.M. Best has affirmed the debt ratings of "bbb+" on the subordinated and the "bbb" on the undated junior subordinated bond either issued or guaranteed by Hannover Re. All ratings have been removed from under review with negative implications and assigned a stable outlook. The ratings were placed under review on 8 November 2005 in connection with the acquisition of Gerling by the parent company, Talanx AG. (See below for a detailed list of the ratings.)

These rating actions follow the resolve of the under review status of Talanx AG (see related A.M. Best press release of August 29) and the completion of A.M. Best's review of Hannover Re. Hannover Re's ratings reflect its excellent risk-adjusted capitalisation, excellent business position and the expected earnings recovery following the substantial catastrophe losses in 2005. Offsetting factors are the group's limited financial flexibility and high dependence upon retrocession in property/casualty.

Excellent risk-adjusted capitalisation--A.M. Best expects Hannover Re's risk-adjusted capitalisation to be maintained at an excellent level through retained earnings, which compensate for the anticipated growth in 2006. Capital levels for 2005 were substantially lower due to significantly lower earnings as previously anticipated by A.M. Best, although this was partially compensated by the omission of dividends.

Hannover Re successfully issued hybrid capital in 2005, such as the USD 80 million of trust preferred securities as part of the restructuring of its U.S.-based subsidiary Clarendon in the third quarter of 2005. A.M. Best believes the group could issue further instruments. However, Hannover Re has already exhausted the maximum equity credit for hybrid capital of 20% of total adjusted capital, thus negatively impacting its financial leverage. In A.M. Best's opinion, Hannover Re's ability to raise equity is dependent upon its majority shareholder, Talanx AG, which in turn is a non-listed intermediate holding company.

A.M. Best expects that the dependence upon retrocession, which remains high (particularly in property/casualty) although the successful transfer of risks to the capital market through K5 and the recent catastrophe bond issue, alleviates some of the concerns.

Excellent business position--Hannover Re remains one of the five-largest reinsurers worldwide with an excellent business position in the global reinsurance market. A.M. Best expects gross premiums to increase to approximately EUR 10.2 billion (USD 13.1 billion) in 2006 from EUR 9.7 billion (USD 12.5 billion) in 2005. This is mainly due to new non-proportional casualty business; the recovery of financial reinsurance following the closing of accounting fraud investigations against several competitors; and a growth in life/health reinsurance, particularly in the United Kingdom, which offsets the exit from most of the commodity program business in the United States.

Anticipated earnings recovery--A.M. Best anticipates that Hannover Re is likely to generate an excellent net income of approximately EUR 400 million (USD 514 million) based on the expectation of lower catastrophe claims in the second half of 2006 than experienced in 2005. A.M. Best also expects that the recalibration of Hannover Re's catastrophe models and the reduction of exposures to catastrophe-prone lines in the United States, as well as rate increases, should limit the impact of large catastrophes on Hannover Re's earnings. Results of the first half of 2006 have been strong as net income increased by 4.2% to EUR 257 million (USD 330 million).

Earnings in 2005 were exceptionally low with a net income of EUR 49 million (USD 63 million) mainly due to catastrophe losses in the third quarter of 2005, where Hannover Re experienced net claims of approximately EUR 840 million (USD 1.1 billion) from hurricanes Katrina, Rita and Wilma. Their impact was strongly increased by the inadequacy of external vendor catastrophe models, resulting in higher than anticipated exposures to catastrophe risks.

The FSRs of A (Excellent) and the ICRs of "a" of the following rated companies of Hannover Rueckversicherung AG have been affirmed, removed from under review and assigned a stable outlook:

--E+S Rueckversicherung AG

--Hannover Reinsurance (Ireland) Limited

--E+S Reinsurance (Ireland) Ltd.

--Hannover Life Reassurance (Ireland) Limited

--Hannover Re (Bermuda) Ltd.

--Hannover Life Reassurance Company of America

The ICRs of "a" of the following subsidiaries of Hannover Rueckversicherung AG have been affirmed, removed from under review and assigned a stable outlook:

--Hannover Finance Inc. (United States)

--Hannover Finance (Luxembourg) S.A.

The "bbb+" ratings for the following debt issues have been affirmed:

Hannover Finance (Luxembourg) S.A--

--EUR 750 million subordinated fixed to floating rate bond, due February 2024

--EUR 350 million subordinated fixed to floating rate debt, due March 2031

Hannover Finance Inc. (United States)--

--USD 400 million subordinated floating rate bond, due March 2029

(All issues guaranteed by Hannover Re.)

The "bbb" rating for the following debt issues have been affirmed:

Hannover Finance (Luxembourg) S.A. --

--EUR 500 million undated guaranteed subordinated fix-to-floating callable bonds (guaranteed by Hannover Re)

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.