Germany's Hannover Re AG (HNR1.XE), one of the three largest reinsurers worldwide, Wednesday said it is transforming its legal form into a European public limited company, or Societas Europaea, to keep all options open in Europe's future new regulatory environment.

Solvency II, which the European Union plans to introduce Jan. 1, 2013, with a one-year transition period ahead of full enforcement, will set tougher requirements on insurers operating in the EU regarding capital management, risk management, reporting and other issues.

Hannover Re said the plans to become a Societas Europaea, SE, which will be completed by early next year, reflect the international character of its business and its workforce. It also enables Hannover Re to relocate headquarters within the EU.

It is currently incorporated as an Aktiengesellschaft, or AG, which is the traditional term identifying publicly listed companies in Germany, similar to SA in France or SpA in Italy.

Chief Executive Ulrich Wallin told the annual news conference that potential plans to relocate the Hannover-based company abroad aren't related to any tax or labor representation considerations, but are related to current Solvency II talks with regulators.

A key issue for insurers and reinsurers in the new regulatory environment will be how much money they must set aside to back the risks they take on their books while ensuring they are solvent even in crisis scenarios.

Large European players--hoping that regulators will accept diversification within their group as a reason to demand less capital be set aside--are negotiating with regulators acceptance of so-called "internal models" for the matching of capital, solvency and risk. Smaller insurers are expected to use a so-called "standard model" developed by the EU, which doesn't account for diversification benefits and will likely demand more capital as a backup.

"It is relatively important to get our internal model approved, in order to be able to calculate and steer solvency on a group level," Wallin said. He added that it is unclear whether Hannover Re, which is 50.2% owned by Germany's Talanx AG insurance group, would be able to get its own internal risk model approved in Germany, in addition to parent Talanx getting its own internal model approved.

A relocation of Hannover Re to a different EU jurisdiction than the parent would certainly make it easier to get its own internal risk model approved, Wallin said.

"If we can get the approval of the internal model easier or faster outside Germany, it would be a disadvantage to stay," Wallin said. "It would, however, have to be a substantial advantage, due to the expenses involved."

Hannover Re is currently discussing the internal risk model with the German insurance regulator, BaFin, along with Irish and U.K. regulators, as the reinsurer is also represented there.

Though talks with the German regulator are at an advanced stage, the approval isn't there yet, Wallin said, though he hopes to get it by the end of 2012. He added that there aren't currently any concrete plans to move headquarters, overall the potential relocation plans currently have a likelihood of about 20%-30%.

In recent years, a number of European insurers--such as Allianz SE (ALV.XE) and Scor SE (SCR.FR)--and many companies in other sectors--such as Porsche Holding SE (PAH3.XE), MAN SE (MAN.XE) and BASF SE (BAS.XE)--have transformed into the SE incorporation. It isn't yet clear whether other insurers have similar plans.

- By Ulrike Dauer, Dow Jones Newswires; +49 69 29725 500; ulrike.dauer@dowjones.com

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