Content

Acquisition of Clarendon Insurance Group completed

Hannover, 26 February 1999:

Yesterday Hannover Re confirmed in New York that it had closed the agreement announced in August 1998 for the acquisition of all shares of Clarendon Insurance Group retroactively from 1 January 1999.

Summing up the acquisition, Wilhelm Zeller, Chairman of the Executive Board of Hannover Re, commented: "This acquisition brings us a step closer to achieving two key strategic objectives: the further expansion of business in one of our most important priority markets, the USA, and the diversification of our earnings base through the addition of a major niche segment.". The special features of program business mark it out as a new, strategic business segment for Hannover Re in addition to property/casualty, life/health and financial reinsurance.

Mr. Zeller went on to emphasize that the acquisition of Clarendon Group would directly boost profits in the current financial year and increase the earnings per share. As far as the diversification of the earnings base is concerned, Mr. Zeller pointed to the fact that the highly competitive, cyclical and volatile property/casualty reinsurance segment would account for less than half of Hannover Re's premium income from 1999 onwards.

A key factor in the increase in the earnings per share was the decision to finance the transaction not by a capital increase but through the placing of a secondary loan. Explaining the advantage of this type of hybrid equity, Mr. Zeller stated that - while it technically involved outside capital - the important reinsurance rating agencies treated it as equity capital due to its secondary status. Mr. Zeller reported that the second-highest ratings of AA+ ("Excellent") and A+ ("Superior") which Hannover Re has enjoyed for several years had already been confirmed by the American rating agencies Standard & Poor's and A.M. Best.

The gross premiums of Clarendon Insurance Group planned for the current year are put at USD 1.6 billion. Added to its existing activities in the areas of property/casualty, life/health and financial reinsurance, the Hannover Re Group expects its gross premium income from the American market to increase to USD 3.5 billion (EUR 3.0 billion, DEM 5.9 billion). Contributing 50 % of the total gross premium of DEM 11.9 billion (EUR 6.1 billion) planned for the current year. For Hannover Re, the USA has advanced to become by far the most important single market. Mr. Zeller added that the German market now accounted for just 20 % of total gross premiums, with international business thus generating altogether 80 % from 1999 onwards.

Clarendon is one of the few leading writers of program business in the USA. Program business is a specialty of the US 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.