Hannover Life Reassurance Bermuda Ltd. (HLR), one of the newest entrants to the Island's insurance market, has been assigned excellent ratings with a positive outlook by rating agency AM Best.

HLR, a subsidiary of German reinsurance giant Hannover Re, opened for business in Bermuda in October last year.

Best yesterday announced that it has assigned a financial strength rating (FSR) of A (Excellent) and an issuer credit rating (ICR) of "a+" to the company.

The ratings reflect A.M. Best's view that the recently formed HLR Bermuda is a natural extension of Hannover Re's life reinsurance networkand so is integral to Hannover Re's expansion strategy in this segment. Other factors include an excellent initial capitalisation and experienced management team.

HLR was set up to enable Hannover Re to offer its clients additional capacity in a well established favourable business environment, in particular for financing business, which Best expects to comprise the majority of HLR Bermuda's portfolio.

In addition, HLR is planning to write traditional life reinsurance, as well as longevity risks, including bulk pension buy-outs.

Best believes that HLR Bermuda will benefit from Hannover Re's global life reinsurance franchise and network. An offsetting factor is the potential negative effect on business growth prospects in respect of the global economic slowdown expected in some of HLR Bermuda's key markets.

The company has established a management team of four, comprised of people who formerly worked for Hannover Life Reassurance (Ireland) Ltd., (HLR Ireland) and led by Colin Rainier, who founded and led HLR Ireland for eight years. Best believes that HLR Bermuda's management team has the experience to develop the company into a successful organisation.

Best also believes that HLR Bermuda is well capitalised, with 120 million euros of paid-up capital provided initially by Hannover Re. A.M. Best expects a further improvement in risk-adjusted capitalisation over the next few years from retained earnings, despite a strong growth forecast by HLR Bermuda. An offsetting factor is the company's dependence on a high proportion of deferred acquisition costs (DAC).

HLR Bermuda's pricing guidelines are in line with that of its parent company. Notwithstanding this, margins for financing reinsurance are generally lower than for traditional mortality risk, despite the fact that Hannover Re has been able to improve returns in recent years.