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Hannover Re to acquire U.S. specialty insurance group

Hannover, August 25, 1998:

Hannover Re announced today that it has reached an agreement in principle to acquire all outstanding shares of Clarendon Insurance Group, New York for USD 500 m in cash. Clarendon, jointly owned by its management and Kansa International Corporation Ltd. of Helsinki, Finland, is one of the few leading writers of program business in the United States.

"Some time ago, we targeted and started to build up the program business as a promising growth area in the U.S. It was an extremely fortunate opportunity that one of the established and fast growing leaders in this specialty market came up for sale, Wilhelm Zeller, chairman of the executive board of Hannover Re, commented on the acquisition.

Ralph Milo, Chairman and Chief Executive Officer of Clarendon Insurance Group, said: "The only impediment to grow our successful venture even faster is now eliminated. With the capital resources and security of the world's fifth-largest reinsurer and its worldwide network we now feel well positioned and are determined to become the most profitable company in the U.S. program business market.

Clarendon has been a very profitable organization since it embarked on the program business in the early nineties. 1997 profit amounted to USD 44.8 m before tax and USD 27.3 m after tax, representing a return on equity of 17.4 % and 10.6 %, respectively. Mr. Zeller concluded: "This acquisition will be earnings-accretive from day one. Based on 1999 estimated net income we expect our earnings per share to increase by DEM 1.

Clarendon writes gross premium of USD 1.3 bn. in the current year and expects this to increase to USD 1.5 bn. in 1999. This acquisition will bring Hannover Re's 1999 estimated group gross premium income to well over DEM 11 bn.

Mr. Zeller commented: "U.S. program business will become the fourth strategic cornerstone of our worldwide activities, with the remaining three being property/casualty, life/health and financial reinsurance. "The relative share of the more cyclical, highly competitive and less predictable P/C reinsurance business will reduce to below 50 % of our 1999 worldwide gross premium income. This will put our group on a much more diversified and better balanced basis, thus substantially reducing the volatility of our earnings perspective, Mr. Zeller added.

Hannover Re Group made the United States its top priority market two years ago. "With gross premiums of more than USD 2.5 bn., the U.S. will in future be by far our single-largest market, according to Mr. Zeller.

Program business is a specialty of the U.S. insurance market. Usually written as primary insurance, it involves an insurance carrier working in close cooperation with reinsurers and highly specialized managing general agents. The business itself is typically focused on niche, non-standard or hard-to-place coverages.

The transaction, which is expected to close in the fourth quarter with effect from December 31, 1998, is contingent upon the execution of a definitive agreement and is subject to customary regulatory approvals. Hannover Re intends to finance the acquisition by a combination of internal resources and hybrid equity. A rights issue is not intended.