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Hannover Re not involved in the Unicover Pool losses

Hannover, 15 April 1999:

An analyst's report on the Hannover Re stock released by the investment bank Goldman Sachs on 1 April 1999, points to a potential risk of default on reinsurance recoverables held by Clarendon Insurance Group, New York, (since 1 January 1999 a wholly-owned subsidiary of Hannover Re) against the reinsurers in the Unicover Pool. This would also appear to be the reason why the previous buy recommendation was not restated.

Unicover is an American underwriting agency which wrote US workers' compensation business on behalf of well respected reinsurance companies. This business is evidently now generating considerable losses. Despite press reports to the contrary, neither Hannover Re nor any of its subsidiaries is a reinsurer of the Unicover Pool.

In common with numerous other highly reputed insurance companies, Clarendon has ceded a small share of its reinsurance cessions under workers' compensation business (roughly 15 %) via Unicover to the pool's reinsurers. The reinsurers of the Unicover Pool are without exception companies with superb credit ratings, such as Connecticut General Life (A+)*, Phoenix Home Life (A)*, Lincoln National Life (A+)*, Cologne Life Re (A+)* and Reliastar Life (A)*. There is absolutely no indication that these reinsurers will fail to fulfil their obligations to Clarendon. Consequently, no significant losses are anticipated from this business relationship. Even in the unlikely event of a worst-case scenario, i.e. assuming that all the reinsurers participating in the Unicover Pool fail to meet their outstanding obligations to Clarendon, the default risk would amount to at most USD 40-45 million. In light of the reinsurers' excellent credit ratings and bearing in mind that none of them has indicated to Clarendon that it will not honor its obligations, we consider the aforementioned default risk to be purely hypothetical.

Furthermore, we do not believe that the current developments constitute grounds to reduce our participations in US workers' compensation business. On the contrary, the elimination of the Unicover Pool from the market has led to a substantial reduction in the level of available reinsurance capacity. As a consequence, there are now indications that reinsurers can look forward to highly attractive terms and conditions. We shall exploit these opportunities and systematically expand our portfolio.

The characters in brackets indicate the ratings awarded to the various reinsurers by the respected rating agency A.M. Best. "A" is equivalent to "Excellent", "A+" stands for "Superior".