HANNOVER, Germany, Aug. 11, 2005 (PRIMEZONE) -- Hannover Re:
- Growth in net premiums + 6.2% - Net income for the first half-year + 8.3% - Stockholders' equity + 12.3% - Return on equity 16.9% - All four business groups deliver positive profit contributions - Combined ratio in property and casualty reinsurance 96.5%
In its interim report published today Hannover Re expressed satisfaction with the development of its business.
Hannover Re continued to make the most of the highly advantageous conditions in property and casualty reinsurance and expanded its market position. The combined ratio of 96.5% in property and casualty reinsurance testifies to the sustained good quality of the portfolio. Consolidated net income was boosted by 8.3% as at 30 June 2005 to 229.0 million euro (211.5 million euro), equivalent to earnings of 1.90 euro (1.75 euro) a share. All four business groups contributed to this result. "With this performance we are on track to achieve our ambitious profit targets for the full year", Wilhelm Zeller, Chairman of the Executive Board, confirmed.
Hannover Re's capital base also showed further improvement: stockholders' equity increased to 2.9 billion euro, a rise of 12.3% compared to the level of 31 December 2004 (2.6 billion euro). As an additional factor, in May 2005 Hannover Re issued subordinated debt of 500 million euro and thereby further optimised its capital base. As part of this transaction the existing holders of a 350 million euro bond issued in 2001 were able to exchange into the new issue, an opportunity which more than 60% of them took up. The policyholders' surplus of Hannover Re grew by 13.7% to 4.8 billion euro (4.2 billion euro). Standard & Poor's confirmed Hannover Re's "AA-" rating at the beginning of August.
The gross written premiums of the Hannover Re Group grew by a modest 0.7% to 4.8 billion euro (4.8 billion euro). Exchange-rate movements were no longer significant as at 30 June 2005, with a negative effect of just 2.7%. The level of retained premiums rose 6 percentage points to 82.5%, causing net premiums to climb 6.2% to 3.7 billion euro.
In property and casualty reinsurance the second quarter of 2005 offered Hannover Re further good opportunities to write profitable business. The treaty renewal season in Japan and Korea as at 1 April 2005 was used to enlarge the portfolio under favourable conditions. "Pricing discipline among the global reinsurance players is holding firm. In view of the very low level of interest rates, however, it is absolutely essential for reinsurers to focus on a solid underwriting policy", Mr. Zeller stressed. Particularly in long-tail casualty business, rates remained largely stable. Thanks in part to its very good rating, Hannover Re is a highly sought-after partner in this sector. Due to the conservative reserving policy of past years, there was once again on balance no need to make additional contributions to the loss reserves for previous underwriting years.
Gross premium income in property and casualty reinsurance increased by a substantial 13.3% to 2.4 billion euro (2.1 billion euro). At constant exchange rates growth would have been 15.5%. With a rise of 10.6 percentage points in the level of retained premiums, net premiums earned climbed by as much as 23.7% to 1.8 billion euro (1.5 billion euro). Yet this growth in no way implies that Hannover Re is abandoning its "More from less" initiative. Quite the contrary, management of the portfolio will continue to be guided exclusively by considerations of profitability.
After a first quarter of a high burden of losses, the second quarter did not record any major losses -- while an additional claim from the previous quarter was recorded. The burden of major losses as at 30 June 2005 totalled 112.3 million euro. This figure corresponds to 6.1% of net premiums and is thus almost exactly in line with the multi-year average of 6%. The very good combined ratio of 96.5% was higher than in the same period of the previous year (94.3%), although it should also be borne in mind here that the volume of major claims in the corresponding period (51.9 million euro) was significantly lower than average.
The underwriting result decreased from 84.7 million euro to 64.7 million euro. The operating profit in property and casualty reinsurance improved only modestly on the outstanding performance of the same period in the previous year, rising by a mere 0.4% to 229.2 million euro (228.4 million euro). Due to considerably lower tax expenditure net income for the reporting period surged by a vigorous 32.9% to 154.0 million euro, or 1.28 euro (96 cents) a share.
Results in life and health reinsurance developed very favourably in the first half of 2005. Gross premiums increased again by an impressive 19.4% to 1.1 billion euro (0.9 billion euro). At constant exchange rates the growth would have been 22.0%. The increase was attributable not only to the cultivation of new customer relationships in Germany and the United Kingdom but also to vigorous new business with our existing clients, especially in the area of unit-linked life and annuity insurance. The retention rose from 91.8% to 93.2%, causing net premiums earned to climb by 21.7% to 1.0 billion euro (0.9 billion euro). "Experience shows that premiums and profitability are stronger in the second half of the year, so the mid-year results are better than planned", Mr. Zeller noted. Hannover Re, which operates worldwide in this business group under the proprietary brand name Hannover Life Re, boosted its operating profit (EBIT) by 16.0% to 45.4 million euro (39.2 million euro). Net income for the reporting period was 8.2% higher at 25.7 million euro (23.7 million euro). Life and health reinsurance thus contributed earnings of 21 cents (20 cents) a share to the Group result.
Financial reinsurance remains under heavy media scrutiny as a consequence of investigations launched by a number of US regulatory agencies. Hannover Re, too, has been approached by the authorities for information and is cooperating - on a voluntary basis - with all agencies. "We have stressed on numerous occasions that due to our rigorous underwriting guidelines we have nothing to hide and we have a vested interest in clarifying and eliminating any deficiencies", Mr. Zeller explained. Nevertheless, the ongoing debate surrounding financial reinsurance arrangements has served to dampen demand, especially among US clients. As a further factor, the substantially improved capital resources of primary insurers have been reflected in sharply reduced demand for capital-replacing surplus relief contracts. Gross premium income was significantly lower, as anticipated, falling by 24.6% to 508.6 million euro (674.8 million euro). In original currency the decline would have been 22.1%. Net premiums contracted by as much as 32.3% to 373.9 million euro (552.0 million euro) due to a slight reduction in the level of retained premiums.
The operating profit (EBIT) declined by a less marked 23.3% to 50.1 million euro (65.3 million euro). Net income after tax decreased by 21.6% to 36.0 million euro (45.9 million euro), or 30 cents (38 cents) a share.
In specialty insurance, formerly known as program business, the process of strategic reorientation was set in motion: as the next step in the restructuring activities initiated in 2002, the Clarendon Insurance Group, Hannover Re's New York-based subsidiary, is repositioning itself on the market. Henceforth the company will operate as a specialty insurer writing profitable niche business, such as non-standard automobile covers and fine arts policies. "Clarendon will discontinue its considerably more competitive routine business, such as householders' and homeowners' comprehensive, where it is up against the major players in the US primary market", Mr. Zeller explained. This will lead to an appreciable reduction in gross premium volume. In view of the envisaged increase in the retention to a level of 80 percent, however, the impact on net premiums will be at most marginal.
Gross premiums contracted by 24.5% to 804.5 million euro (1.1 billion euro). In the original currency the decline would have been 21.0%. The level of retained premiums initially decreased to 45.1% (49.1%), and net premiums were consequently 26.5% lower at 411.6 million euro (559.8 million euro). The combined ratio increased to 99.2% (96.6%) as the company adjusted to its new strategic orientation. The operating profit (EBIT) posted as at 30 June 2005 totalled 23.1 million euro (42.5 million euro). Net income after tax fell to 13.3 million euro (25.9 million euro), equivalent to earnings of 11 cents (21 cents) a share.
In view of the protracted low level of interest rates Hannover Re is highly satisfied with the development of its investment income. The sustained vigorous cash flow from the technical account saw assets under own management grow by 13.5% year-on-year to 17.9 billion euro (15.8 billion euro); the income generated from these investments was slightly higher than in the previous year. Owing to sharply lower interest on deposits -- most notably due to the marked reduction in financial reinsurance -- the total investment income of 504.9 million euro came in somewhat lower than in the same period of the previous year (533.1 million euro). The balance of profits and losses realised on the disposal of investments was positive at 60.6 million euro (83.2 million euro). The profit contribution from extraordinary income was consequently lower than in the same period of the previous year. Net investment income thus came in 5.2% lower than in the previous year at 537.4 million euro (567.0 million euro); it nevertheless remains within the planning parameters for the full financial year, especially with respect to the portfolio of assets under own management. Write-downs on securities were no longer a factor, amounting to just 5.9 million euro (19.9 million euro).
Outlook
"Judging by the development of the financial year to date we are entirely on track for a successful 2005", Mr. Zeller affirmed. Rates and conditions in property and casualty reinsurance remain attractive, and Hannover Re therefore looks forward to sustained premium growth. Provided the burden of major losses does not exceed the multi-year average during the remainder of the year, the result in property and casualty reinsurance should be even higher than in the previous year. "The early arrival of the hurricane season in Central and North America and the losses already incurred should have correspondingly favourable implications for the negotiations over pricing and conditions that reinsurers will be conducting with their clients at meetings from September onwards", Mr. Zeller observed.
Further double-digit premium growth is to be anticipated in life and health reinsurance, most notably from Germany, the United Kingdom and Asian markets. Overall, sharply higher profitability is expected.
In financial reinsurance Hannover Re continues to anticipate a low double-digit percentage decline in premium volume. Although net income is also likely to be lower, it should still be highly gratifying.
Premium income in the specialty insurance business group will be lower than in the previous year. A positive after-tax result above the cost of capital should nevertheless be attainable.
For 2005 Hannover Re expects to maintain the highly positive underwriting cash flow and hence further growth in its investments. Even if interest rates remain low, income from assets under own management should also come in somewhat higher again.
"In view of the development of our business groups in the year to date, I am confident that -- as planned -- we can substantially boost our profitability in the year under review", Mr. Zeller stressed. Subject to the premise that major loss expenditure is in line with the multi-year average and provided there are no downward movements on capital markets, Hannover Re reiterates its expectation of net income in the order of 430 -470 million euro, or earnings of roughly 3.60 - 3.90 euro a share.
Hannover Re, with gross premiums of approximately EUR 10 billion, is one of the largest reinsurance groups in the world. It transacts all lines of property/casualty, life/health and financial/finite-risk reinsurance as well as specialty insurance. 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 18 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")
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.