Hannover Re off to a good start in the new financial year

Thursday, 03. May 2007 07:30



Hannover Re off to a good start in the new financial year

* Group net income for the quarter +16.8%
* Non-life reinsurance satisfactory despite heavy burden of
major losses (quarterly net income +3.8%)
* Life and health reinsurance records excellent result
(quarterly net income more than doubled)
* Return on equity 16.6%

Hannover, 3 May 2007: Hannover Re expressed considerable satisfaction
with its opening quarter of the new financial year. "With our
quarterly result we have put in place a good foundation for achieving
our envisaged profit target for 2007 - namely a return on equity of
at least 15 percent after tax", Chief Executive Officer Wilhelm
Zeller affirmed.

Hannover Re's capital base remains strong: shareholders' equity
increased by 154.6 million euro compared to the position as at 31
December 2006 to reach 3.1 billion euro, thereby surpassing the three
billion euro mark for the first time.

The operating profit (EBIT) as at 31 March 2007 contracted by 17.2%
compared to the same period of the previous year to stand at
154.2 million euro (186.3 million euro). This can be attributed
principally to the impact of winter storm "Kyrill" in Europe. Group
net income as at 31 March 2007 improved by 16.8% to 123.5 million
euro (105.7 million euro) thanks to a lower tax burden and reduced
minority interests. Earnings of 1.02 euro (88 cents) a share were
generated.

The gross premium booked by the Hannover Re Group contracted by 9.4%
to 2.4 billion euro (2.7 billion euro). In this context it is
particularly important to remember that 295.0 million euro in
unconsolidated gross premium of Praetorian Financial Group, Inc. is
no longer reported in continuing operations due to the latter's
pending sale. The company still anticipates completion of the
transaction in the course of the second quarter of 2007. The
persistent low demand for structured covers in the United States and
the fact that Clarendon Insurance Group, Inc. has very largely
withdrawn from active business may be cited as further key factors in
the premium decline. These effects were not entirely offset despite
the vigorous growth in life and health reinsurance (+22.8%). At
constant exchange rates the decrease in gross premium would have
amounted to 7.2%. The level of retained premium climbed to 84.9%
(78.1%) due to lower retrocessions, as a consequence of which net
premium fell by a considerably less marked 3.2% to 1.7 billion euro
(1.8 billion euro).

In view of the agreement reached in December 2006 regarding the sale
of Praetorian Financial Group, Inc., its after-tax result is reported
- as was already the case in the 2006 annual financial statement - in
a separate line (net income from discontinued operation) within the
consolidated statement of income in accordance with IFRS. The
previous year's figures have been appropriately adjusted in order to
ensure year-on-year comparability with the corresponding period.

As has already been announced, following the sale of its primary
insurance subsidiary Praetorian - active in the area of US specialty
business - Hannover Re will concentrate exclusively on its core
business of reinsurance; its reporting will distinguish between the
two business groups of non-life reinsurance and life and health
reinsurance. Financial reinsurance, as part of the product range in
non-life reinsurance, and the remaining portion of specialty business
will be included in the non-life reinsurance segment.

Further strategic measures taken in the first quarter were dedicated
to forward-looking pro-active risk management: "By way of two capital
market innovations we have made further provision to ensure that our
capital base is not eroded by exceptionally large losses", Mr. Zeller
stressed. Not only that, risks associated with a partial portfolio of
reinsurance recoverables were transferred to the capital market,
thereby eliminating a potential credit risk.

The state of the market in non-life reinsurance, the company's
largest business group, remains positive. Although the treaty renewal
season as at 1 January 2007 demonstrated that the hard market has now
passed its peak, the rate level was broadly stable with only a few
exceptions, and it was therefore still possible to obtain prices and
conditions commensurate with the risks. In those areas that did see
significant rate reductions, such as aviation business, prices
generally retreated from what were still rather high levels. Although
the rate increases in catastrophe-exposed US property business fell
slightly short of those at the 1 July 2006 mid-year renewal date,
they still improved on the previous year's level by around 35%. "It
is my assumption that the price increases in this segment will be
sustained", Mr. Zeller emphasised.

As anticipated, demand for structured covers in the United States was
again muted in the first quarter of 2007. New contracts were,
however, written in Europe and Asia.

Specialty business developed very much as anticipated: Praetorian
enlarged its premium volume and also generated a good result.
Clarendon, on the other hand, is no longer writing any new business,
concentrating instead on the professional management and run-off of
cancelled programs.

Gross premium income booked in all non-life reinsurance business
contracted to 1.7 billion euro (2.1 billion euro) as at 31 March
2007, a fall of 18.9% compared to the same period of the previous
year. At constant exchange rates, especially against the US dollar,
the decline would have been 16.9%. Owing to the sharply higher
retention of 83.8% (75.2%), driven principally by effects in
specialty business, net premium earned decreased by a less
appreciable 13.9% to 1.1 billion euro (1.3 billion euro).

The major loss incidence in the first quarter was notable for winter
storm "Kyrill", which swept across Europe in the middle of January.
For Hannover Re this event means a net burden of just under 160
million euro before tax. "The scale of losses was alleviated by our
'K5' capital market transaction", Mr. Zeller pointed out. In addition
to "Kyrill", other major losses involved further windstorm damage as
well as the crash of a satellite. All in all, net expenditure on
catastrophe losses and major claims came in at 174.3 million euro.
This was equivalent to 15.9% of net premium in non-life reinsurance,
and the multi-year average of 8% was thus substantially exceeded in
the first quarter. Nevertheless, fluctuations from quarter to quarter
are by no means uncommon. Against this backdrop the combined ratio
stood at 105.2% (98.5%).

The net underwriting result slipped from 2.5 million euro to
-66.2 million euro as a consequence of the unusually heavy major loss
incidence. The operating profit (EBIT) in non-life reinsurance
contracted accordingly by 38.1% to 93.3 million euro (150.8 million
euro). Group net income climbed by 3.8% to 102.0 million euro
(98.3 million euro) due to a lower tax burden and reduced minority
interests. Earnings of 85 cents (82 cents) a share were generated.

The development of the life and health reinsurance business group
once again proved extremely gratifying in the first quarter of 2007,
thus building almost seamlessly on the vigorous pace of growth in the
2006 financial year. The demographic trend in the industrialised
nations continues to drive growth in annuity and health insurance.
Further stimuli derived inter alia from the bancassurance sector in
Europe and from the area of new business financing. "We are
positioned across a broad front with our product mix and can profit
from a diverse range of market niches. It is already the case that
only a minor portion of our portfolio is attributable to traditional
mortality-oriented business", Mr. Zeller observed.

Gross premium income in life and health reinsurance climbed by a
substantial 22.8% as at 31 March 2007 to 744.1 million euro
(605.7 million euro). At constant exchange rates growth would have
come in at 25.6%. The retention of 87.4% was on roughly the same
level as the corresponding period of the previous year (87.7%). Net
premium earned increased by 22.5% to 644.2 million euro
(525.8 million euro).

"Although in life and health reinsurance the third and fourth
quarters, in particular, are traditionally the strongest in terms of
premium volume and profitability, this year's performance was already
exceptionally gratifying as at 31 March", Mr. Zeller remarked.
Hannover Re, which operates worldwide in this business group under
the Hannover Life Re brand name, generated a considerably higher
operating profit (EBIT) of 51.8 million euro (25.9 million euro).
Group net income was more than doubled to 33.9 million euro
(14.0 million euro). Life and health reinsurance thus contributed
earnings of 28 cents (12 cents) a share to the Group result.

The European Embedded Value (EEV) also developed very favourably for
the life and health reinsurance business group. The EEV consists of a
valuation of the portfolio as well as the allocated capital and hence
provides a basis for assessing its long-term profitability. As at 31
December 2006 the EEV of Hannover Life Re amounted to 1.5 billion
euro (1.3 billion euro), an increase of 16.3%. The value of new
business totalled 64.2 million euro (84.7 million euro). The
operating embedded value earnings from new business and the in-force
portfolio climbed by 65.0% to 185.6 million euro (112.5 million
euro). This is equivalent to 14.2% of the EEV.

Hannover Re similarly expressed considerable satisfaction with the
performance of its investments. Compared to the position as at 31
December 2006, the inflow of cash into the technical account combined
with offsetting market movements and especially a weaker US dollar
left the overall portfolio of assets under own management virtually
unchanged at 19.2 billion euro. Ordinary income excluding interest on
deposits rose by 4.3% to 195.2 million euro, as against 187.2 million
euro in the comparative period of the previous year. This can be
attributed primarily to a higher average yield in the asset
portfolios. Profits on disposals amounted to 40.2 million euro
(21.1 million euro), contrasting with realised losses of 11.5 million
euro (13.0 million euro). Interest on deposits declined owing to the
planned reduction of funds held by ceding companies - especially
under old structured covers. This effect was offset by the increase
in ordinary income, as a consequence of which net investment income
improved on the corresponding period of the previous year by 6.3% to
reach 255.1 million euro (239.9 million euro).

Outlook
In view of the attractive market opportunities available in both
non-life reinsurance and life and health reinsurance, Hannover Re is
looking forward to a very good result for the full 2007 financial
year. "As a further positive factor, the reallocation of the risk
capital released by the sale of US primary insurance subsidiary
Praetorian will open up new avenues for boosting profitability", Mr.
Zeller explained. By way of example, profitable growth opportunities
can be tapped into by running a higher retention in the still
profitable property catastrophe sector, through acceptance of
additional US catastrophe business, in life and health reinsurance,
and indeed through the cultivation of new markets such as those in
Central and Eastern Europe and in the Islamic world. "In order to
enable our shareholders to enjoy more of the profit from the German
market going forward, we increased our share in E+S Rück - which
bears sole responsibility for the Group's lucrative German business -
by 10% as at 1 April 2007 to 65.8%", Mr. Zeller explained.

Market conditions in non-life reinsurance remain good on balance.
This was evidenced by the outcome of the treaty renewals as at
1 January 2007. The situation in US catastrophe business is still
favourable despite the moderate hurricane season in 2006. Even in
those areas that did see rate decreases, such as aviation business,
prices are still largely commensurate with the risks. The renewal
season for Japan and South Korea as at 1 April 2007 also passed off
satisfactorily. In Japan Hannover Re was able to defy the general
trend and boost its premium. This is all the more remarkable inasmuch
as the company scaled back its peak exposures under windstorm and
earthquake covers in Japan. It successfully stepped up its activities
in the so-called Kyosai market (business transacted with small mutual
aid societies). Prices in Japanese casualty business ranged from
rising to stable, enabling Hannover Re to enlarge its portfolio.

"Although the market climate is currently favourable almost
everywhere, we by no means lose sight of promising markets for the
future. Bearing in mind the enormous growth potential inherent in the
worldwide Islamic insurance market, we are striving to expand our
Sharia-compliant reinsurance business through our newly established
Bahrain-based subsidiary", Mr. Zeller affirmed. "Hannover ReTakaful
got off to a good start and lived up to our expectations."

In the area of structured products Hannover Re anticipates further
growth in demand, particularly in Europe and Asia.

All in all, net premium volume for the entire non-life reinsurance
business group should come in on roughly the same level as the
previous year. Provided the burden of major losses for the full
financial year remains within the bounds of the expected level of
around 8% of net premium, a very healthy profit contribution can be
anticipated.

The market opportunities offered by life and health reinsurance
should facilitate double-digit organic growth and a similar increase
in the result. Growth stimuli are expected from European markets as
well as from various Asian countries and South Africa. Pilot projects
in the US market aimed at opening up alternative distribution
channels with the aid of system-supported underwriting are also
bearing fruit. It is therefore to be expected that the marketing of
simple, transparent life insurance products will inject fresh growth
impetus into the US life market.

As far as the investment portfolio is concerned, the anticipated
positive cash flow as well as the proceeds expected to accrue from
the sale of Praetorian in the second quarter will serve to boost the
volume of assets in the course of the year. Given a normal market
environment, the income from assets under own management should
continue to grow.

In view of the developments described above, Hannover Re is looking
forward to a very good result for the full 2007 financial year.
"Assuming that the burden of major losses comes in around the
expected level and as long as there are no adverse movements on
capital markets, we expect to generate a return on equity of at least
15% and Group net income in excess of the previous year", Mr. Zeller
concluded. It remains the company's intention to pay out a dividend
in the range of 35% to 40% of Group net income.


For further information please contact:

Press and Public Relations:
Gabriele Handrick (tel. +49 / 511 / 56 04-15 02,
e-mail: gabriele.handrick@hannover-re.com)

Investor Relations:
Gabriele Bödeker (tel. +49 / 511 / 56 04-17 36,
e-mail: gabriele.boedeker@hannover-re.com)


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 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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Hannover Rück
Karl-Wiechert-Allee 50 Hannover Germany

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in Bayerische Börse München,
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Related Links: Hannover Rück SE
Author:
Hugin
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