Fitch Ratings has taken various conforming rating actions on U.S. enhanced municipal bonds and tender option bonds (TOBs) corresponding to actions taken on their associated enhancement providers, liquidity providers or underlying bonds.

Key Rating Drivers

The U.S. enhanced municipal bonds and TOB ratings addressed in this rating action commentary (RAC) are dependent ratings, being the subject of pre-existing rating dependencies. A list of the U.S. enhanced municipal bond and TOB ratings actions can be seen via the 'View Additional Rating Details' link below.

All rating actions announced in this RAC are directly driven by separately announced rating actions on associated enhancement providers, liquidity providers or underlying bonds. The most recent RAC with respect to the credit rating of each associated enhancement provider, liquidity provider or underlying bonds referenced herein sets out the key rating drivers and names and contact details of the relevant primary and secondary analysts and committee chair in relation to the credit ratings of such enhancement providers, liquidity providers or underlying bonds.

The specific pre-existing rating dependency relationship for a given U.S. enhanced municipal bond or TOB rating can be seen by viewing the RAC published at the time the rating dependency was established.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade

A positive rating action on the associated enhancement providers, liquidity providers or underlying bonds, taking into account the specificities of the existing rating dependencies;

A restructuring of the enhancement existing arrangements (e.g. a change to a higher rated enhancement provider), in which case the affected rating dependency relationship will be reviewed and the ratings may be positively affected.

Factors that could, individually or collectively, lead to negative rating action/downgrade

A negative rating action on the associated enhancement providers, liquidity providers or underlying bonds, taking into account the specificities of the existing rating dependencies;

A restructuring of the enhancement existing arrangements (e.g. the expiry of the enhancement), in which case the affected rating dependency relationship will be reviewed and the ratings may be negatively affected or withdrawn.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

VIEW ADDITIONAL RATING DETAILS

Additional information is available on www.fitchratings.com

PARTICIPATION STATUS

18

Fitch Affirms Hannover Re's IFS Rating at 'AA-', Outlook Stable

Tue 02 Jul, 2024 - 12:03 pm ET

Fitch Ratings - Paris - 02 Jul 2024: Fitch Ratings has affirmed Hannover Rueck SE's (Hannover Re) and reinsurance subsidiary E+S Ruckversicherung AG's (E+S Re) Insurer Financial Strength (IFS) Ratings at 'AA-' (Very Strong) and Hannover Re's Long-Term Issuer Default Rating (IDR) at 'A+'. The Outlooks are Stable.

The affirmation reflects Hannover Re's very strong company profile within the global reinsurance sector, capitalisation and financial performance.

Key Rating Drivers

Very Strong Company Profile: Hannover Re's company profile in the global reinsurance sector is underpinned by its established competitive positioning, large operating scale and wide business and geographic diversification. Property and casualty (P&C) and life and health (L&H) reinsurance represented 69% and 31% of 2023 revenue, respectively.

Very Strong Capitalisation: Solvency 2 (S2) ratio was very strong at 267% at end-1Q24 (end-2023: 269%, end-2022: 252%), which is significantly above the group's 200% minimum target and at the higher-end of its large European reinsurers peer group's. Strong operating capital generation has enabled the group to finance risk exposure growth and increase capital returns to shareholders in 2023. Its Prism Global model (Prism) score was 'Extremely Strong' at end-2023 (little changed from end-2022 under IFRS17 and versus 'Very Strong' under IFRS4). Fitch expects Hannover Re to maintain its capital strength in the medium term, assuming large losses to remain within budget.

Moderate Financial Leverage: Hannover Re's financial leverage ratio (FLR), as calculated by Fitch, improved to 21% at end-2023 from 24% at end-2022 due to the redemption of EUR500 million subordinated notes. We expect Hannover Re's FLR to remain broadly consistent with Fitch's benchmark range of 10%-23% for the 'aa' rating category.

Stable Earnings Profile: Hannover Re has a record of very strong profitability, as reflected in a historically higher net income return on equity (ROE) than other leading EMEA reinsurers. Earnings are more stable than peers' due to effective use of reserving and retrocession. The group also differentiates itself by steady revenue growth and a structurally low-cost base.

Very Strong Financial Performance: Fitch-calculated return on equity (ROE) rose to 19% in 2023 (2022: 9%), driven by improved underwriting and investment results on the back of favourable market conditions. Reported net P&C combined ratio (CR) improved slightly to 94.0% (2022: 94.5%), supported by stronger pricing and smaller, below-budget large losses.

L&H reinsurance margins have strengthened significantly, driven by substantial contractual service margin (CSM) release (representing 16% of opening CSM) on lower mortality claims and rate increases. Fitch anticipates that based on its very strong 1Q24 earnings and assuming within-budget large losses and stable capital markets, the group will deliver similar or better profitability in 2024 than in the previous year. We expect strong pricing, positive run-offs and rising investment income to be supportive of 2024 earnings.

Strong Reserve Adequacy: Fitch views Hannover Re as one of the best reserved global reinsurers. Prudence in reserving practices is reflected in continued favourable prior-year reserves development (2.8pp of CR in 2023) and a strong surplus in held reserves over the best estimates. The group took advantage of strong underwriting results to increase reserves buffers to around EUR2.0 billion at end-2023. In 2022, reserves buffers had decreased to around EUR1.4 billion due to inflationary pressures.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

An improvement in Fitch's assessment of company profile driven by a further strengthening of competitive position. The following conditions would have to be met on a sustained basis:

ROE above 10%

S2 ratio above 200%

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

A deterioration in capital position, with the S2 ratio falling below 170% or a Prism score falling to below 'Very Strong' for a prolonged period

A sustained decline in ROE to below 7%

FLR above 28%

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS

Click here to access Fitch's latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in our credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

(C) 2024 Electronic News Publishing, source ENP Newswire