HANNOVER, Germany, May 17, 2004 (PRIMEZONE) -- Hannover Re:
-- Vigorous surge in profitability despite considerable
premium decline
-- Operating profit (EBIT) + 41.8%
-- Quarterly net income + 36.1%
-- Net investment income + 43.5%
-- Combined ratio in property and casualty reinsurance 95.4%
In its report on the first quarter of 2004 published today, Hannover Re expressed considerable satisfaction with its start into the new financial year.
The company was again able to profit from the opportunities offered by the reinsurance markets and generated excellent results despite markedly lower gross premium income than in the comparable quarter of the previous year -- in part due to exchange-rate effects. The operating profit (EBIT) as at 31 March 2004 increased by almost 42% year-on-year to 154.5 million euro. Quarterly net income grew by a good 36% to 96.9 million euro, or 80 cents (73 cents) a share. "With our 'More from less' initiative we have established a solid foundation for the accomplishment of our ambitious annual targets and demonstrated that the primary concern in our industry is profit, not volume," Wilhelm Zeller, Chairman of the Executive Board, emphasised. He sums up this business principle by the catchphrase "Volume is vanity, profit is sanity."
Hannover Re has further reinforced its financial strength: stockholders' equity increased by more than 10% compared to the position as at year-end 2003 to reach 2.7 billion euro. The subordinated debt of 750 million euro that was successfully placed in February 2004 further contributed to the strengthening of the equity base.
Gross written premiums across all four business groups contracted substantially by 21.8%, amounting to 2.5 billion euro (3.2 billion euro) for the first quarter of 2004. At constant euro exchange rates, especially against the US dollar, the decline would have been 15.2%. Parallel to this development the level of retained premiums from the business written increased appreciably, as a consequence of which net premiums fell by a mere 4.5% to 1.6 billion euro (1.7 billion euro). After allowance for exchange-rate effects, this figure is roughly on a par with the previous year.
The treaty renewals in property and casualty reinsurance as at 1 January 2004, when roughly two-thirds of all treaties were renegotiated, were highly successful. This positive trend was sustained as at the renewal date of 1 April 2004. Further improvements in rates and conditions were obtained in almost all lines. As Mr. Zeller pointed out: "We used this development to further optimise our portfolio for the years ahead. Most importantly, we scaled back high-volume but lower-margin proportional business while at the same time continuing to expand our involvement in the casualty sector." The fact that gross premiums still declined by an appreciable 20.2% to 1.2 billion euro (1.5 billion euro) was due in particular to the restructuring of HDI business and the "More from less" initiative. In the former case, Hannover Re no longer accepts the entire volume of its affiliates but only the portion that it intends to retain. Although this reduces the gross premium it also decreases the reinsurance recoverables, the level of which has been under critical scrutiny by the rating agencies since last year. Under the "More from less" initiative acceptances are scaled back in those areas offering only below-average profitability. The contraction in premium income was also due not least to the influence of exchange rates: had it not been for the appreciation of the euro -- especially against the US dollar -- the decrease would have been 15.3%. Net premiums fell less sharply by 6.4% to 669.9 million euro (715.9 million euro).
The claims experience in the first quarter was satisfactory. The burden of major losses -- at 28.3 million euro or 4.2% of net premiums -- was somewhat below the multi-year average; no major losses had been recorded in the same period of the previous year. The good quality of the business written and the favourable market conditions caused the combined ratio to decrease to 95.4%, a further significant improvement on both the same period of the previous year (100.3%) and the full 2003 financial year (96.0%). This is all the more remarkable given the enlarged proportion of long-tail casualty business -- where, unlike in the property lines, the combined ratio typically is significantly higher in the year when a treaty is first concluded.
The improved underwriting result of 30.5 million euro (-1.9 million euro) produced another substantially higher operating profit (EBIT) of 75.4 million euro in property and casualty reinsurance, a rise of 43.6% compared to the previous year (52.5 million euro). Quarterly net income was also boosted by 15.5% to 39.9 million euro (34.6 million euro), or 33 cents (35 cents) a share.
Results in life and health reinsurance developed very favourably in the first quarter of 2004. As in property and casualty reinsurance, however, gross premiums contracted sharply by 22.2% to 444.0 million euro (570.8 million euro). This was attributable, firstly, to the discontinuation of a major account in the United Kingdom and, secondly, to the weakness of the US dollar. Without the exchange-rate effects the decline in gross premiums would have been 17.7%. Net premiums earned decreased less markedly by 17.9% to 399.9 million euro (487.1 million euro). "Although experience shows that we can expect premiums to grow more strongly in the second half than in the early part of the year, we attach greater importance to profitability than premium," Mr. Zeller remarked. As at 31 March 2004 Hannover Re, which operates in this business group under the worldwide brand Hannover Life Re, generated an operating profit (EBIT) of 24.1 million euro (15.9 million euro), a rise of 52.3%. Quarterly net income even increased by as much as 69.8% to 16.4 million euro (9.6 million euro), or 14 cents (10 cents) a share.
The development of financial reinsurance was once again especially gratifying. Following rapid growth in gross premiums in the same period of the previous year (110.8%), premium income contracted as expected by 22.7% to 353.7 million euro (457.6 million euro). At constant exchange rates the decline would have been 14.4%. Net premiums climbed by 5.3% to 249.0 million euro (236.5 million euro) due to the increased retention. Improved investment income produced another sizeable rise of 84.6% in the operating profit (EBIT) to 32.6 million euro (17.7 million euro). Net income after tax grew even more impressively, surging by 102.8% to 26.0 million euro after more than doubling year-on-year in the same period of 2003 relative to 2002. This corresponded to earnings of 21 cents (13 cents) a share.
In program business Hannover Re moved forward with its efforts to bring about a sustained improvement in profitability. "In the current year we therefore maintained our focus on the quality of the business," Mr. Zeller stated. Gross written premiums fell by 24.5% to 487.0 million euro (645.1 million euro). Again, this decline was due in part to exchange-rate effects. The relative weakness of the US dollar impacted the heavily US-weighted portfolio of program business particularly severely. At constant exchange rates gross premiums would have contracted by just 13.5%. Due to a higher retention, however, net premiums increased appreciably by 19.4% to 282.4 million euro (236.4 million euro).
The combined ratio rose to 97.4% (92.1%), principally on account of the higher retention. The operating profit (EBIT) was slightly lower at 22.3 million euro. The quarterly net income of 14.6 million euro nevertheless improved on the same period of the previous year (14.1 million euro) by 3.1%, or 12 cents (15 cents) a share.
Hannover Re is highly satisfied with the development of its net investment income. Particularly against the backdrop of a very strong underwriting cash flow, the volume of assets -- including funds held by ceding companies -- grew by 16.3% to 23.8 billion euro (20.5 billion euro). The ordinary income of 257.2 million euro remained virtually unchanged from the previous year (260.2 million euro) -- in large part due to a decline in interest on reinsurance deposits. In the first three months of the year under review profits of altogether 77.2 million euro (45.6 million euro) were realised on the disposal of investments. This contrasted with realised losses of 6.5 million euro (4.4 million euro). Write-downs of a mere 14.2 million euro were necessary in the period until 31 March 2004; the figure had been as high as 75.3 million euro in the same period of the previous year. Against this backdrop Hannover Re boosted its net investment income by 43.5% to 298.5 million euro (208.0 million euro).
Outlook
"We expect our business to continue to develop favourably in the course of the 2004 financial year," Mr. Zeller concluded. It is evident from the treaty renewal season in property and casualty reinsurance that the advantageous market rates and conditions are holding firm. In view of the restructuring of the HDI business, the "More from less" initiative and the protracted dollar weakness, however, Hannover Re expects lower premium volume in property and casualty reinsurance for the full year, too. Assuming that the major loss experience remains in line with the multi-year average, the result should once again surpass the previous year.
In life and health reinsurance the company expects premium income to remain largely stable; the results should continue to develop favourably.
In financial reinsurance too a slight reduction in premium is anticipated, albeit with another significant profit contribution.
Profitability in program business is likely to improve on the first quarter of the year under review. Gross premium income -- adjusted for exchange-rate effects -- will probably be roughly on a par with the previous year, while net income should be higher year-on-year.
Provided there are no unusual movements on capital markets, Hannover Re expects net investment income to at least match -- if not exceed -- the previous year. The sustained positive underwriting cash flow should further boost the volume of assets, with favourable implications -- despite the continuing low yield level -- for net investment income.
As Mr. Zeller affirmed: "In light of the developments described above, and provided the burden of major losses remains within the bounds of the multi-year average and there are no adverse movements on capital markets, we stand by our forecast of February 2004 and anticipate consolidated net income of between 390 and 430 million euro".
For further information, please contact Eric Schuh (tel. +49/ 511/ 56 04-15 00; fax +49/ 511/ 56 04-16 48, e-mail eric.schuh@hannover-re.com).
Hannover Re, with gross premiums of approximately EUR 11 billion, is one of the five largest reinsurance groups in the world. It transacts all lines of property/casualty, life/health and financial/finite-risk reinsurance as well as program business. It maintains business relations with more than 3,000 insurance companies in about 150 countries. Its worldwide network consists of more than 100 subsidiaries, branch and representative offices in 19 countries. 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").