SOURCE: Hannover Ruck

November 06, 2009 01:40 ET

Hannover Re presents very pleasing interim result

HANNOVER, GERMANY--(Marketwire - November 6, 2009) -


Hannover Re presents very pleasing interim result

* Gross premium + 25.6% on the back of stronger demand and ING acquisition

* Net premium + 30.3% due to increased retention

* Net investment income + 129.6%

* Group net income EUR 578.4 million

* Moderate burden of catastrophe losses

* Combined ratio 96.8%

* EBIT margin comfortably beats target

* Profit target for 2009 raised to at least EUR 5.75 per share

* Dividend of at least EUR 2 envisaged for 2009

Hannover, 6 November 2009: In its interim report presented today Hannover Re expressed considerable satisfaction with the development of its business. "With our result for the third quarter we have secured a very good foundation and are in a position to raise our profit target for the full financial year. We now anticipate earnings of at least EUR 5.75 a share and are looking to pay a dividend of at least EUR 2 per share", Chief Executive Officer Ulrich Wallin explained.

The operating profit (EBIT) as at 30 September 2009 improved substantially year-on-year to reach EUR 844.8 million. Group net income surged - in part due to various special effects in life and health reinsurance - by EUR 721.2 million to EUR 578.4 million. The result for the corresponding period of the previous year had been negative (-EUR 142.8 million) owing to heavy write-downs taken on equities because of the turmoil prevailing on capital markets at the time. Earnings of EUR 4.80 (-EUR 1.18) a share were generated; the annualised return on equity stood at 24.2% (-6.4%).

Gross written premium in total business rose by 25.6% to EUR 7.7 billion (EUR 6.1 billion) as at 30 September 2009. This includes EUR 606.4 million from the acquisition of the ING life reinsurance portfolio. Exchange-rate effects did not play a significant role. With the level of retained premium increasing to 92.3% (88.8%), net premium earned climbed by an even stronger 30.3% to EUR 6.7 billion (EUR 5.2 billion).

The development of shareholders' equity, which improved by 24.9% on the level as at 31 December 2008 to EUR 3.5 billion (EUR 2.8 billion), was especially gratifying. The policyholders' surplus, comprised of shareholders' equity, minority interests and hybrid capital, increased from EUR 4.7 billion to EUR 5.4 billion.

Hannover Re was highly satisfied with the development of its non-life reinsurance. The situation on the international reinsurance markets remains positive. The effects of the financial market crisis have highlighted particularly forcefully the attraction of reinsurance as a capital management tool, especially in cash-intensive segments. Demand for reinsurance protection has consequently risen in numerous segments. The industry summits in Monte Carlo, Baden-Baden and the United States underscored this trend.

Capacities contracted sharply in credit and surety insurance in response to higher loss ratios triggered by the financial market crisis. Hannover Re made the most of the associated significant price rises and selectively enlarged its portfolio. Even though the result only reached break-even as at 30 September 2009 owing to increased default rates and prudent reserving, the company sees the improving loss ratios as confirmation of its strategy and expects the written credit and surety business to return to profitability in 2010.

Business in Central and Eastern Europe, where the company enlarged its portfolio, is faring well. Stronger demand in the area of structured covers continues to open up highly attractive opportunities.

Gross premium in non-life reinsurance as at 30 September 2009 improved on the comparable period of the previous year by 16.2% to EUR 4.4 billion (EUR 3.8 billion). At constant exchange rates, especially against the US dollar, the increase would have been 13.0%. The retention climbed to 93.4% (88.4%) due to substantially reduced retrocessions. Net premium earned consequently rose by an impressive 21.3% to EUR 3.8 billion (EUR 3.1 billion).

In light of an unremarkable hurricane season the burden of catastrophe losses in the third quarter was below average. Hail and flood damage in Central Europe, an industrial fire claim in Russia as well as a loss event in marine business led to expenditure in the order of EUR 35 million. All in all, the total net burden of catastrophe losses and major claims in the period until 30 September 2009 stood at EUR 198.2 million (EUR 444.9 million). This is equivalent to 5.3% of net premium in non-life reinsurance and hence comfortably below the expected level. The combined ratio amounted to 96.8% (103.6%).

The net underwriting result in non-life reinsurance improved from -EUR 131.2 million in the comparable period of the previous year to EUR 98.1 million. The operating profit (EBIT) increased to EUR 477.0 million (-EUR 86.0 million). Group net income climbed to a very good EUR 331.3 million (-EUR 178.0 million), producing earnings of EUR 2.75 (-EUR 1.48) a share.

Hannover Re is very pleased with the development of its life and health reinsurance business. Owing to a visibly weaker solvency position insurers are adopting a considerably more cautious risk strategy and financial policy, hence leading to an increased clamour for both risk- and financially oriented products. This state of affairs was particularly evident in the United States, where the insurance industry suffered marked erosion of its capital base.

"Block assumption transactions, i.e. the assumption of defined in-force portfolios, also currently offer favourable opportunities which we again used in the third quarter to expand our business", Mr. Wallin explained.

Driven by the acquisition of the ING life reinsurance portfolio and vigorous organic growth, gross written premium as at 30 September 2009 surged by a substantial 41.1% to EUR 3.3 billion (EUR 2.3 billion). At constant exchange rates the increase would have been 43.2%. The retention climbed from 89.3% to 90.8%. Net premium earned rose by 43.8% to EUR 3.0 billion (EUR 2.1 billion).

Net investment income in life and health reinsurance was doubled from EUR 206.3 million to EUR 433.5 million. Positive special effects resulting from the reversal of unrealised losses on deposits with US clients were again a factor here in the third quarter. The operating profit (EBIT) therefore improved considerably to EUR 331.4 million (EUR 93.2 million). The EBIT margin of 11.2% consequently surpassed the target corridor of 6.5% to 7.5%. Group net income climbed to EUR 261.7 million (EUR 61.4 million), producing earnings of EUR 2.17 (EUR 0.51) a share.

Investments developed satisfactorily for the Group as a whole in the first nine months. The portfolio of assets under own management improved on the volume as at 31 December 2008, growing to EUR 21.7 billion (EUR 20.1 billion) thanks largely to a positive operating cash flow. Despite significantly lower interest rates, ordinary income excluding interest on deposits fell just slightly short of the value in the corresponding period of the previous year at EUR 603.8 million (EUR 627.5 million) - a testament to the fact that Hannover Re is correct in pursuing an investment policy geared to generating stable ordinary income.

The balance of realised gains and losses totalled EUR 67.9 million as at 30 September 2009, as against EUR 77.0 million in the comparable period of the previous year. Along with impairments taken on fixed-income securities of EUR 35.2 million, the volume of write-downs totalling altogether EUR 110.3 million (EUR 433.0 million) was due in large measure (EUR 70.8 million) to alternative investments; of this amount, EUR 47.5 million was attributable to private equity. Unrealised gains on asset holdings measured at fair value through profit or loss amounted to EUR 135.4 million. This contrasted with unrealised losses of EUR 33.4 million in the corresponding period of the previous year. This positive development resulted chiefly from the reversal of unrealised losses on securities deposits held for the account of Hannover Re by US clients.

Assisted first and foremost by the improvement in unrealised gains and a significantly reduced volume of write-downs, the net investment income climbed very strongly to EUR 850.5 million (EUR 370.4 million).

Outlook

Hannover Re anticipates a pleasing result for 2009 in both non-life and life/health reinsurance. At constant exchange rates the company expects the net premium volume to grow by around 30%.

In non-life reinsurance the markets present a very satisfactory picture overall. The price level is broadly commensurate with the risks, although in some segments - for example US casualty business - further rate increases are needed. Owing to an above-average claims development in the aviation segment in the year under review, higher prices can be obtained for both loss-affected and loss-free programmes in the currently ongoing round of treaty renewals. The company sees attractive business opportunities in the area of structured covers, especially with an eye to the likely implications of Solvency II.

Net premium in non-life reinsurance should show growth of around 20% by year-end. Provided the burden of catastrophe losses and major claims continues to remain within the anticipated bounds, a very healthy profit contribution can be expected.

The fundamental business climate in life and health reinsurance is also positive. Here, too, the financial and economic crisis has prompted stronger demand for reinsurance and hence provided growth stimuli.

Owing to the acquisition of the ING life reinsurance portfolio effective 1 January 2009, Hannover Re expects the net premium volume to rise by around 40%. All in all, the life and health reinsurance business group should also deliver a very good profit contribution to total business.

On the investments side the anticipated positive cash flow should - subject to stable exchange rates - result in further growth in the asset holdings. In the area of fixed-income securities the company continues to stress the high quality and diversification of its portfolio. "We shall only consider investing in equities again in a more stable market climate", Mr. Wallin emphasised.

In light of its strategic orientation and the available market opportunities in non-life and life/health reinsurance, Hannover Re expects to post a very good result for the 2009 financial year. Assuming that the burden of catastrophe losses and major claims does not significantly exceed the expected level in non-life reinsurance, and as long as there are no adverse movements on capital markets, Hannover Re expects - allowing for the non-recurring effect from the acquisition of the ING life reinsurance portfolio - a return on equity in excess of 20% and earnings per share of at least EUR 5.75 for the 2009 financial year. The company's goal is to pay a dividend in the order of at least EUR 2.


For further information please contact:

Press and Public Relations / Investor Relations:
Stefan Schulz (tel. +49 511 5604-1500,
e-mail: stefan.schulz@hannover-re.com)

Press and Public Relations:
Gabriele Handrick (tel. +49 511 5604-1502,
e-mail: gabriele.handrick@hannover-re.com)

Investor Relations:
Klaus Paesler (tel. +49 511 5604-1736,
e-mail: klaus.paesler@hannover-re.com)

Please visit: www.hannover-re.com

Hannover Re, with a gross premium of around EUR 9 billion, is one of the leading reinsurance groups in the world. It transacts all lines of non-life and life and health reinsurance. It maintains business relations with more than 5,000 insurance companies in about 150 countries. Its worldwide network consists of more than 100 subsidiaries, branch and representative offices on all five continents with a total staff of roughly 2,000. The rating agencies most relevant to the insurance industry have awarded Hannover Re very strong insurer financial strength ratings (Standard & Poor's AA- "Very Strong" and A.M. Best A "Excellent").

Disclaimer: Some of the statements in this press release may be forward-looking statements or statements of future expectations based on currently available information. Such statements are naturally subject to risks and uncertainties. Factors such as the development of general economic conditions, future market conditions, unusual catastrophic loss events, changes in the capital markets and other circumstances may cause the actual events or results to be materially different from those anticipated by such statements. Hannover Re does not make any representation or warranty, express or implied, as to the accuracy, completeness or updated status of such statements. Therefore, in no case whatsoever will Hannover Re and its affiliate companies be liable to anyone for any decision made or action taken in conjunction with the information and/or statements in this press release or for any related damages.


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