SOURCE: Hannover Ruck

May 06, 2008 01:37 ET

Hannover Re reports gratifying interim result

HANNOVER, GERMANY--(Marketwire - May 6, 2008) -

Hannover Re reports gratifying interim result

*         Operating profit (EBIT) + 59.3%
*         Group quarterly net income + 22.6%
*         Non-life reinsurance: EBIT almost doubled
*         Combined ratio 99.5%
*         Life and health reinsurance: EBIT margin within the target
*         Net investment income stable despite difficult capital
·    Return on equity 18.7%

Hannover, 6 May 2008: Hannover Re expressed satisfaction with its start to the new financial year. "Despite some headwind due to the difficult situation on the global capital markets, our quarterly result puts in place a good foundation for achieving our defined 2008 profit target - namely a return on equity in excess of 15 percent after taxes", Chief Executive Officer Wilhelm Zeller affirmed.

The operating profit (EBIT) as at 31 March 2008 improved on the corresponding period of the previous year by 59.3% to reach 245.6 million euro (154.2 million euro). Group net income climbed 22.6% to 151.5 million euro (123.5 million euro), equivalent to earnings of 1.26 euro (1.02 euro) a share.

The gross written premium booked by the Hannover Re Group contracted as anticipated by 5.5% as at 31 March 2008 to 2.3 billion euro (2.4 billion euro). The decrease was attributable principally to the weakness of the US dollar. At constant exchange rates the premium volume would have remained virtually unchanged. The level of retained premium increased to 88.7% (84.9%) as a consequence of significant savings on the cost of the company's own protection covers, and net premium therefore fell by a mere 3.3% to 1.7 billion euro (1.7 billion euro).

The development of non-life reinsurance gave Hannover Re grounds for satisfaction. "Although many markets are exhibiting unmistakable softening tendencies, we nevertheless obtained prices and conditions largely commensurate with the risks in the 1 January renewals", Mr. Zeller explained. In light of the softening markets the cycle management practised by Hannover Re for many years is taking on growing importance. In areas that offered attractive opportunities, such as worldwide credit and surety reinsurance and German business, Hannover Re enlarged its market share. Participations in particularly cyclical markets such as North America, on the other hand, were scaled back. Instead, the focus is on profitable market and product niches, including for example Central and Eastern Europe as well as reinsurance transacted according to Islamic principles - a segment that has generated pleasing growth to date. Hannover Re also expanded its facultative reinsurance portfolio, principally in the casualty lines.

Gross premium in non-life reinsurance contracted by 9.5% as at 31 March 2008 relative to the comparative period of the previous year to stand at 1.5 billion euro (1.7 billion euro). At constant exchange rates, especially against the US dollar, the decrease would have been only 4.2%. The level of retained premium increased from 83.8% to 88.6% as a consequence of significant savings on the cost of the company's own protection covers. Net premium earned fell by 8.8% to 1.0 billion euro (1.1 billion euro).

The incidence of major losses was below average in the first quarter: the largest single loss event was the European winter storm "Emma" with a net strain of 26.3 million euro. Along with two other natural catastrophe losses a number of fire claims and one marine loss were recorded, although the burden for Hannover Re from these loss events was relatively moderate. Total net expenditure on major losses amounted to 68.1 million euro. This figure is equivalent to 6.8% of net premium and was thus below the expected level of 10%. The combined ratio came in at 99.5% (105.5%).

The underwriting result improved on the comparative quarter of the previous year, which had been impacted by the heavy catastrophe loss expenditure attributable to winter storm "Kyrill", from -66.2 million euro to -3.3 million euro. The operating profit (EBIT) in non-life reinsurance surged sharply by 94.5% to 181.5 million euro (93.3 million euro). Group net income increased by 11.3% to 113.5 million euro (102.0 million euro), producing earnings of 94 cents (85 cents) a share.

Hannover Re was also highly satisfied with the performance of the life and health reinsurance business group. Although premium growth was relatively moderate owing to special effects in the same quarter of the previous year as well as adverse movements in exchange rates, the dynamic pace of growth is likely to be sustained in the course of the financial year. Hannover Re, which operates in this business group under the Hannover Life Re brand, transacts its business on the basis of a five-pillar model. "With this positioning we can assure ourselves of a promising portfolio and sustained organic growth going forward", Mr. Zeller emphasised. In the first quarter the company succeeded in closing its largest transaction to date - a so-called block assumption transaction for US individual life business. In the United Kingdom - the second-largest life reinsurance market in the world - the company is positioned as a specialty provider for enhanced annuities. In this area, as in the reinsurance of pension funds, the company continues to see good business prospects.

Another special focus of Hannover Life Re is on the Asian markets: "In China we expect to commence business operations by the end of May through our newly established Shanghai branch. This will enable us to tap into the advantages enjoyed by a local reinsurer in the vigorously expanding Chinese market", Mr. Zeller noted. In South Korea, Asia's largest life reinsurance market, the company had already been granted a provisional business licence back in December 2007; by the middle of 2008 - if everything goes according to plan - it should also be possible to commence business activities through the newly established branch office in Seoul.

Gross written premium in life and health reinsurance climbed by 3.5% as at 31 March 2008 to 770.1 million euro (744.1 million euro); at constant exchange rates growth would have reached 10.0%. The level of retained premium rose from 87.4% to 88.6%. Net premium earned grew by 5.8% to 681.8 million euro (644.2 million euro).

The operating profit (EBIT) totalled 47.9 million euro (51.8 million euro). Whilst this figure was lower than in the comparative period of the previous year, the first quarter of 2007 had been influenced by a positive special effect in excess of 14 million euro. The claims experience for both mortality and morbidity risks in the first quarter was most gratifying at all operating units of the life and health reinsurance business group. The EBIT margin of 7.0% was within the target corridor of 6.5% to 7.5%. Group net income was boosted by 13.0% to 38.3 million euro (33.9 million euro); equivalent to earnings of 32 cents (28 cents) a share, this constitutes a good basis for achieving the targets for the full financial year.

As in the previous year, Hannover Re is also reporting on the European Embedded Value in the context of its first interim report. This consists of a valuation of the life and health reinsurance portfolio as well as of the allocated capital and hence provides a good opportunity to assess its long-term profitability. For the 2007 financial year the EEV for life and health reinsurance was for the first time calculated entirely on the basis of market-consistent assumptions. The Market Consistent Embedded Value determined for the life and health reinsurance portfolio increased by 12.3% to 1.7 billion euro (1.5 billion euro). The Value of New Business improved from 64.2 million euro to 106.4 million euro. The Operating Embedded Value Earnings from both new and in-force business surged by a pleasing 50.9% to 280.0 million euro (185.6 million euro).

Hannover Re was very largely satisfied with the development of its investments, although the protracted turmoil on capital markets of course had repercussions for the portfolio. The continuing slide in the US dollar caused the assets under own management to contract relative to the level of 31 December 2007 to 19.0 billion euro (19.8 billion euro). Ordinary income excluding interest on deposits grew by 6.5% to 211.3 million euro (198.3 million euro). This is attributable to the slightly higher average yield in the portfolios as well as to the marginally increased average portfolio relative to the corresponding quarter of the previous year.

As part of its proactive approach to portfolio management the company used the market upheavals in January and February primarily as an opportunity for tactical shortening of durations in its USD portfolios: in this context profits of 133.8 million euro (40.2 million euro) were realised on the disposal of investments, as against realised losses of 26.1 million euro (11.5 million euro). In view of the difficult situation on capital markets write-downs of 85.6 million euro were taken on securities, thereof 65.1 million euro on equities. Net income from assets under own management decreased slightly by 1.6% to 208.0 million euro (211.5 million euro). This effect was, however, offset by a 16.8% increase in income from interest on deposits, as a consequence of which net income from total investments improved on the same period of the previous year by 1.7% to 262.6 million euro (258.2 million euro).


In view of its strategic orientation and the available market opportunities in non-life and especially life/health reinsurance, Hannover Re anticipates another good result in 2008.

Both the gross and net premium should come in on a par with the previous year.

Prices and conditions are for the most part still acceptable in the non-life reinsurance market despite perceptible softening tendencies. "In areas where the business failed to satisfy our profitability standards we pulled back and reshuffled our portfolio in favour of other segments - such as German business or the worldwide credit and surety line", Mr. Zeller emphasised. The increased market shares here will have correspondingly favourable implications for the year-end result. Furthermore, as a result of significant savings with respect to expenses for retrocession, EBIT for 2008 in non-life reinsurance is expected to increase.

The treaty renewals as at 1 April in Japan and South Korea were again notable for softening reinsurance markets. In Japan the picture was a mixed one across the various segments. In general property business Hannover Re obtained stable prices; the portfolio here was modestly enlarged. Windstorm and earthquake covers, on the other hand, saw appreciable rate reductions as expected due to the absence of losses. Prices for Japanese casualty business were largely stable, enabling the company to maintain its portfolio. "Overall, the treaty renewals in Japan were still acceptable; in the event of further rate reductions, however, we shall scale back our involvement accordingly", Mr. Zeller affirmed. The Korean market witnessed more intense competition prompted by the arrival of new providers. In light of significant pressure on prices Hannover Re consolidated its portfolio in Korea and is concentrating on its core clients.

Following the abolition of the reinsurance monopoly in Brazil Hannover Re intends to establish a representative office in Rio de Janeiro. Approval to launch business operations in Latin America's largest insurance market should be received from the Brazilian regulator in the coming weeks.

"For non-life reinsurance we expect a reduction of our net premium by 5% due to the weaker US dollar. Provided the burden of catastrophe losses and major claims is within the expected level of 10% of net premium, a very healthy profit contribution can be anticipated", Mr. Zeller stated.

The prospects in life and health reinsurance continue to be very favourable. The increasing size of the upper levels of the age pyramid in industrial nations should drive further growth in annuity and health insurance. Hannover Re anticipates positive growth impetus in the United States in the areas of special health covers for senior citizens and block assumption transactions. In Germany the company concentrates primarily on products aimed at senior citizens and unit-linked policies, with above all long-term care annuities likely to enjoy growing popularity. Yet the rapid formation of a middle class in emerging and developing nations should also ensure that the company is able to enjoy sustained growth. "With our newly established branches in China and South Korea we can maximise the current and future potentials offered by these life insurance markets better than we have to date. For 2008 we expect continued favourable profitability and double-digit premium growth", Mr. Zeller affirmed.

On the investments side we are concerned that due to the continuing weakness of the US dollar our investment portfolio will grow only moderately despite the anticipated positive cash flow that Hannover Re generates from its technical account and asset holdings. Assuming a normalisation of the capital markets during the course of 2008, Hannover Re is looking to a stable income from investments under own management. In the area of fixed-income securities the focus continues to be on high quality and good diversification of the portfolio. In combination with the equity holdings, the investments should be able to deliver a stable profit contribution.

Given the adequate conditions still prevailing on the reinsurance markets and the company's broad diversification - both in terms of its reinsurance business and investment portfolio -, Hannover Re anticipates another good result for the full 2008 financial year. "Provided the burden of major losses does not significantly exceed the expected level of 10% of net premium in non-life reinsurance and assuming a normalisation of the capital markets, we expect to generate a return on equity of more than 15 percent and earnings per share of around 5 euro in the 2008 financial year", Mr. Zeller explained.

For further information please contact:

Press and Public Relations / Investor Relations:
Stefan Schulz (tel. +49 / 511 / 56 04-15 00,

Press and Public Relations:
Gabriele Handrick (tel. +49 / 511 / 56 04-15 02,

Investor Relations:
Daniela Gissinger (tel. +49 / 511 / 56 04-15 29,

Hannover Re, with a gross premium of around 8 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 1,800. 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.

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