SOURCE: Hannover Ruck

May 05, 2009 01:38 ET

Hannover Re records gratifying interim result

HANNOVER, GERMANY--(Marketwire - May 5, 2009) -

Hannover Re records gratifying interim result

* Net premium climbs 24.6% due to acquisition of the ING life portfolio, an increased retention and effects of the hardening market

* Burden of catastrophe losses within the expected bounds

* Combined ratio 95.0%

* Operating profit (EBIT) + 24.5%

* Group quarterly net income + 42.7%

* One-off profit contribution from acquisition of the ING life portfolio amounting to roughly 80 million euro after tax

* Market Consistent Embedded Value in life and health reinsurance virtually unchanged at 1.7 billion euro

* Forecast for the full financial year: Return on equity of at least 18% including one-off effect from ING life portfolio

Hannover, 5 May 2009: Hannover Re expressed satisfaction with its start to the new financial year. "For our company the adverse effects of the financial market crisis are largely behind us. We are now in a position to profit from the positive developments in both non-life reinsurance and life/health reinsurance. Our quarterly result puts in place a good platform for achieving our ambitious profit target for 2009 - namely a return on equity of at least 18 percent after tax", Chief Executive Officer Wilhelm Zeller explained. The positive one-off effect of 80.2 million euro resulting from the acquisition of the US ING life reinsurance portfolio is included in the forecast.

The operating profit (EBIT) as at 31 March 2009 increased by 24.5% relative to the comparable period of the previous year to reach 305.8 million euro (245.6 million euro). Group net income similarly grew by an appreciable 42.7% to 216.1 million euro (151.5 million euro) owing to the positive one-off effect. This corresponds to earnings of 1.79 euro (1.26 euro) a share.

The gross written premium booked by the Hannover Re Group as at 31 March 2009 increased sharply by 17.0% to 2.7 billion euro (2.3 billion euro) due to the favourable environment in non-life reinsurance and the acquisition in life and health reinsurance. The effects of exchange rate movements were only marginal. With the level of retained premium rising to 91.7% (88.7%), net premium climbed by an even more substantial 24.6% to 2.1 billion euro (1.7 billion euro).

Hannover Re was thoroughly satisfied with the development of non-life reinsurance. The situation on the international reinsurance markets is broadly favourable since the soft market has come to an end sooner than expected. The capital shortage triggered throughout the global insurance industry by the financial market crisis has stimulated appreciable additional demand for reinsurance, hence prompting rates to rise - sometimes by double-digit percentages, such as in credit and surety reinsurance. In catastrophe business, too, and especially in regions that had suffered losses, price increases were obtained. "Nevertheless, we still consider the rate increases in US catastrophe business to be far from sufficient", Mr. Zeller noted. The company has consequently scaled back its involvement in this area.

Hannover Re was highly satisfied with the development of business in the countries of Central and Eastern Europe. Given a sharp surge in demand, it was able to enlarge shares in existing business and acquire new clients. This is also true of the domestic German market, where the company was able to extend its position as one of the leading reinsurers.

Gross premium in non-life reinsurance grew to 1.7 billion euro (1.5 billion euro) as at 31 March 2009, an increase of 9.9% relative to the same period of the previous year. At constant exchange rates, especially against the US dollar, growth would have come in at 6.7%. The level of retained premium climbed from 88.6% to 92.4% on the back of considerably lower retrocessions. Net premium earned consequently rose even more sharply by 18.5% to 1.2 billion euro (1.0 billion euro).

The incidence of catastrophe losses and major claims in the first quarter was higher than in the corresponding quarter of the previous year. The largest individual loss was winter storm "Klaus", which swept across southwest France and northern Spain and caused a burden of 63.3 million euro for net account; the bushfires in Australia produced loss expenditure of 12.5 million euro for Hannover Re. Only minimal strains resulted from the collapse of the Cologne City Archive as well as a satellite failure and plane crash. All in all, the total net burden of catastrophe losses and major claims came in at 98.8 million euro (68.1 million euro). This is equivalent to 8.4% of net premium in non-life reinsurance and is hence within expectations. On the basis of the overall very favourable developments in non-life reinsurance, a combined ratio of 95.0% (99.5%) was achieved.

Against this backdrop the net underwriting result improved substantially on the comparable quarter of the previous year from -3.3 million euro to 53.6 million euro. The operating profit (EBIT) in non-life reinsurance moved 3.4% higher to 187.6 million euro (181.5 million euro) despite the decline in investment income. Group net income increased by 11.1% to 126.1 million euro (113.5 million euro), producing earnings of 1.05 euro (94 cents) a share.

The most striking development in the life and health reinsurance business group in the first quarter was the acquisition of the ING life portfolio in the United States effective 1 January 2009. "We have thus taken a decisive step towards accomplishing our global objectives for the life reinsurance sector and, what is more, we have improved still further the diversification of our revenue streams since life reinsurance business - a hallmark of which is its greater stability - will account for an even larger share of the total portfolio going forward", Mr. Zeller emphasised.

Hannover Re, which operates in this business group under the Hannover Life Re brand, has a particular strategic focus on the so-called BRIC markets (Brazil, Russia, India and China). Yet Korea too - the largest life reinsurance market in Asia - offers good growth prospects. The principal drivers of Hannover Life Re's business nevertheless continue to be the developed insurance markets of the United Kingdom, United States, Germany and Australia.

Gross written premium increased by 30.6% as at 31 March 2009 to 1.0 billion euro (770.1 million euro). Of this total growth, an amount of 193.0 million euro was attributable to the acquisition of the US ING life reinsurance portfolio. At constant exchange rates growth would have reached 36.7%. This effect, which is the opposite of that seen in non-life reinsurance, was caused above all by movements in the pound sterling. The level of retained premium rose by two percentage points to 90.6 %. Net premium earned surged by 33.5% to 910.4 million euro (681.8 million euro).

The operating profit (EBIT) climbed sharply to 117.5 million euro (47.9 million euro). The EBIT margin of 12.9% therefore comfortably surpassed the target range of 6.5% to 7.5%. Group net income increased to 98.0 million euro (38.3 million euro). This includes the one-off effect from our life transaction in an amount of 80.2 million euro. This was equivalent to earnings of 81 cents (32 cents) a share, hence putting in place a solid platform for achieving our annual target.

As in the previous year, Hannover Re is also reporting on the Market Consistent Embedded Value (MCEV) in the context of its interim report on the first quarter. This consists of a valuation of the life and health reinsurance portfolio as well as the allocated capital and hence provides a good basis for assessing long-term profitability. Bearing in mind the present state of the capital markets, the MCEV developed favourably as at 31 December 2008: it remained almost unchanged at 1.7 billion euro (1.7 billion euro). The value of new business was again boosted substantially and now stands at 150.5 million euro (106.4 million euro).

Hannover Re was largely satisfied with the development of its investments, even though conditions on the international capital markets are still difficult. The portfolio of assets under own management increased relative to the volume as at 31 December 2008 to reach 21.0 billion euro, a gain of 4.0%. Ordinary income excluding interest on deposits fell only slightly short of the corresponding quarter of the previous year at 199.3 million euro (211.3 million euro), a testament to the fact that the company is on the right track with its investment policy geared to generating stable ordinary income. Interest on deposits climbed 6.0% to 57.9 million euro (54.6 million euro). After very high realised gains of 133.8 million euro in the corresponding quarter of the previous year due to tactical shortening of durations in the bond portfolio, they returned to a normal level of 45.9 million euro as at 31 March 2009. This contrasted with realised losses of 8.1 million euro (26.1 million euro). The volume of write-downs totalling altogether 50.3 million euro (85.7 million euro) was attributable chiefly to private equity investments. Write-downs of 2.6 million euro (65.1 million euro) were taken on equities and 13.8 million euro (20.5 million euro) on fixed-income securities. The unrealised losses amounted to 33.7 million euro (11.9 million euro). In light of these developments, net investment income contracted by 24.5% to 198.2 million euro (262.6 million euro).


Based on its strategic orientation and the available market opportunities in non-life and life/health reinsurance, Hannover Re anticipates a good result for 2009. At constant exchange rates the net premium volume should grow by approx. 25%.

Market conditions in non-life reinsurance are broadly satisfactory. The pleasing outcome of the round of treaty renewals concluded on 1 January 2009 carried over into the treaty negotiations conducted as at 1 April in Japan and South Korea. Here, too, prices rose on the back of the repercussions of the financial market crisis. In Japan, however, these increases were in some areas still inadequate; Hannover Re responded by reducing its peak exposures here. Rates for casualty business were commensurate with the risks, enabling the company to book higher premiums. "We enjoyed especially gratifying treaty renewals in South Korea. Rate increases in non-proportional property business prompted us to enlarge our shares. In the casualty sector, too, it was possible to obtain price increases sometimes running into the double digits", Mr. Zeller explained.

The company expects net premium in total non-life reinsurance business to grow by approx. 20% in 2009. "Provided the burden of catastrophe losses and major claims does not significantly exceed the anticipated level of 10% of net premium, we are looking forward to a very healthy profit contribution", Mr. Zeller emphasised.

The general environment in life and health reinsurance is also favourable. Here, too, the financial and economic crisis has delivered marked growth stimuli worldwide. The solvency position of primary insurers - especially in the United States - has been visibly weakened, hence fanning demand for both risk- and financially oriented reinsurance solutions. Hannover Re expects this to result in an appreciable rise in cession ratios. What is more, the increasing size of the upper levels of the age pyramid in industrial nations will continue to drive growth in annuity and health insurance. The rapid emergence of a middle class in threshold and developing markets should also foster lasting growth.

Net premium in life and health reinsurance is likely to increase by approx. 35% in the current financial year on account of the acquisition of the US ING life reinsurance portfolio as at 1 January 2009. The EBIT margin should comfortably beat the target corridor of 6.5% to 7.5%. Against this backdrop, Hannover Re expects a very good profit contribution to total business.

On the investments side the anticipated positive cash flow which the company generates from its technical account and asset holdings should - subject to stable exchange rates - result in further growth in the investment portfolio. In the area of fixed-income securities Hannover Re continues to stress high quality and the diversification of its portfolio. "Having reduced our exposure to listed equities to almost zero, volatility on the stock markets does not have any implications for our investment income", Mr. Zeller affirmed.

In light of its strategic orientation and the available market opportunities in non-life and life/health reinsurance, Hannover Re is looking to post a good result for the full 2009 financial year. Assuming that the burden of catastrophe losses and major claims does not significantly exceed the expected level of 10% of net premium in non-life reinsurance, and as long as there are no further adverse movements on capital markets, Hannover Re anticipates a minimum return on equity of at least 18% and earnings per share of at least 5 euro for the 2009 financial year. The one-off effect from the acquisition of the ING life reinsurance portfolio is factored into these expectations. It remains Hannover Re's goal to pay a dividend in the range of 35% to 40%.

For further information please contact:

Press and Public Relations / Investor Relations:
Stefan Schulz (tel. +49 511 5604-1500,

Press and Public Relations:
Gabriele Handrick (tel. +49 511 5604-1502,

Investor Relations:
Klaus Paesler (tel. +49 511 5604-1736,

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Hannover Re, with a gross premium of around 9 billion euro, 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 in around 20 countries with a total staff of roughly 1,900. 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").


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.

Key Figures 1/2009:

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