-- Return on equity 19.9% after tax
-- Gross premium growth +12.8%
-- Major losses in property and casualty reinsurance just 2.7% for
net account
-- Operating profit (EBIT) +29.7%
-- Group net income +4.2%
-- All four business groups generate satisfactory return on equity
HANNOVER, Germany, Aug. 8, 2006 (PRIMEZONE) -- In its semi-annual report published today Hannover Re expressed considerable satisfaction with the development of its business. "Our result as at 30 June is a good basis for achieving our 2006 profit target, namely a return on equity of at least 15 percent", Chief Executive Officer Wilhelm Zeller affirmed.
Market conditions in property and casualty reinsurance continue to be highly advantageous, enabling Hannover Re to generate very profitable business. The development of life and health reinsurance business was extremely positive. The position of the financial reinsurance and specialty insurance business groups has been strengthened. "All our underwriting business groups lived up to our expectations and delivered a satisfactory return on equity," Mr. Zeller stated.
The operating profit (EBIT) in total business was boosted by almost 30% to 449.8 million euro (346.8 million euro). With the tax load returning to normal after the previous year and an increased minority interest, Group net income as at 30 June 2006 grew by a less appreciable 4.2% to 256.6 million euro (246.2 million euro), producing earnings of 2.13 euro (2.04 euro) a share.
Hannover Re's capital base remains strong, although the shareholders' equity of 2.6 billion euro declined slightly by 41.1 million euro compared to the position as at 31 December 2005 due to rising interest rates on international bond markets. The policyholders' surplus, consisting of shareholders' equity, minority interests and hybrid capital, remained unchanged at 4.6 billion euro (4.6 billion euro).
Gross written premium came in 12.8% higher than in the same period of the previous year at 5.4 billion euro (4.8 billion euro). At constant exchange rates growth would have amounted to 9.6%. With the level of retained premium remaining virtually unchanged at 82.2%, net premium climbed 10.1% to 4.0 billion euro (3.7 billion euro).
Property and casualty reinsurance offered Hannover Re further promising opportunities to write profitable business in the second quarter. The renewals as at 1 April 2006 in Japan and Korea as well as those in June/July in the United States and Australia/New Zealand passed off very successfully. Against the backdrop of a significant capacity shortage for property catastrophe business in the USA rates remained on a high level overall -- and in some segments they climbed still higher. Increases of more than 100% were recorded under the reinsurance programmes impacted by last year's hurricanes. An additional factor in this favourable rate trend was the recalibration of models for natural catastrophe events to include loadings for components that had hitherto been inadequately modelled or even neglected entirely.
"What is more, as part of our risk management policy we substantially scaled back our peak exposures -- especially in the USA -- and at the same time were able to maintain our premium volume roughly unchanged, thereby making our portfolio considerably more weatherproof," Mr. Zeller stressed.
Conservatively assessed reserves were constituted for outstanding claims in accordance with the company's accustomed practice. There was again no need on balance to establish additional reserves for previous underwriting years.
Gross premium in property and casualty reinsurance came in 7.6% higher than in the same period of the previous year at 2.6 billion euro (2.4 billion euro). At constant exchange rates, especially against the U.S. dollar, growth would have amounted to 5.2%. The level of retained premium declined by 3.7 percentage points to 83.1%. Net premium earned nevertheless increased disproportionately strongly by 10.6% to 2.0 billion euro (1.8 billion euro) owing to the effects of unearned premium.
On the claims side the second quarter passed off highly satisfactorily. Hannover Re incurred just two major losses, producing a total strain of 22.4 million euro for net account. Net expenditure on major losses in the first half-year now stands at 54.2 million euro (112.3 million euro). This is equivalent to 2.7% of net premium in property and casualty reinsurance, a very low figure relative to the multi-year average of 8%. The fact that the combined ratio of 98.2% (96.7%) was higher than in the corresponding period of the previous year merely reflects our conservative reserving practice and does not imply a deterioration in the loss experience.
The underwriting result totalled 37.4 million euro, compared to 61.2 million euro in the same period of the previous year. The operating profit (EBIT) in property and casualty reinsurance surged by a vigorous 19.4% to 280.5 million euro (235.0 million euro). Owing to a higher tax load relative to the previous year and an increased minority interest, Group net income contracted by 13.8% to 167.5 million euro (194.4 million euro), or 1.39 euro (1.61 euro) a share.
Hannover Re was extremely satisfied with the development of its life and health reinsurance business. "Compared to property and casualty reinsurance, the importance of this business group is often underestimated. For our company, however, life and health reinsurance is the second rising star. Our goal of generating a three-figure operating profit (EBIT) and an EBIT margin of 5% on a sustained basis from 2006 onwards will be accomplished," Mr. Zeller affirmed.
The premium volume in this segment continues to rise at a vigorous pace through organic growth. Impetus again derived principally from the European markets, including for example the United Kingdom -- where especially in the annuity sector increased new business was written. It remains the case that the demographic trend in the developed industrial nations is the engine of growth for annuity and health insurance. Gross premium in this business group climbed 13.4% to 1.3 billion euro (1.1 billion euro). At constant exchange rates growth would have totalled 11.1%. The level of retained premium decreased by a significant 5.2 percentage points to 88.0% as a consequence of the latest "L6" capital market transaction. Net premium earned therefore rose less sharply by 6.7% to 1.1 billion euro (1.1 billion euro).
Operating worldwide in this business group under the brand name Hannover Life Re, Hannover Re boosted its operating profit (EBIT) by 78.5% to 78.2 million euro (43.8 million euro); this amount does, however, include extraordinary income of some 20 million euro from the commutation of a sizeable U.S. treaty. Yet even without this effect the result would have been most gratifying. Group net income as at 30 June 2006 surged 72.5% to 51.1 million euro (29.7 million euro), producing earnings of 42 cents (25 cents) a share.
Financial reinsurance developed satisfactorily: "Having already got off to a good start in the first quarter, business was further expanded -- especially in Central and Eastern Europe and Asia," Mr. Zeller explained. In other regions too, however, business began to pick up again after recent declines in premium volume. "I am confident that demand for structured products will be sustained as the year progresses," Mr. Zeller added.
Gross written premium increased by a substantial 39.5% as at 30 June 2006 to reach 711.3 million euro (510.0 million euro). At constant exchange rates growth would have been 34.8%. The level of retained premium rose by 2.8 percentage points to 94.8%. Net premium earned grew by a less appreciable 16.5% to 436.4 million euro (374.6 million euro) at the halfway stage of the year due to the effects of unearned premium.
Against the backdrop of considerably lower interest on deposits -- reflecting the commutation of a number of sizeable contracts -- the operating profit (EBIT) retreated sharply by 33.2% to 33.5 million euro (50.1 million euro). Group net income fell 34.9% short of the corresponding period of the previous year, amounting to 25.2 million euro (38.7 million euro) as at 30 June 2006. This was equivalent to earnings of 21 cents (32 cents) a share.
The development of the specialty insurance business group was highly gratifying, clearly demonstrating that the restructuring of specialty business in the USA is bearing fruit. While the Clarendon Insurance Group is concentrating on the professional management of terminated programs and on commodity business, the newly established Praetorian Financial Group has assumed responsibility for the specialty insurance that forms the strategic focus of this business group. Praetorian has now strengthened its management team and is profiting from the favourable market environment. "All these factors constitute a promising basis for systematically enhancing the value of our specialty insurance business group," Mr. Zeller stressed.
Gross written premium as at 30 June 2006 climbed 30.6% to 1.1 billion euro (0.8 billion euro). At constant exchange rates growth would have amounted to 25.0%. The level of retained premium rose by 2.8 percentage points to 47.2%, following 44.4% in the comparative period. Net premium earned grew by a less appreciable 8.8% to 449.6 million euro (413.1 million euro) due to the effects of unearned premium.
The combined ratio improved slightly on the same period of the previous year to 97.3% (98.0%). The operating profit (EBIT) as at 30 June 2006 grew by 32.5% -- not least due to considerably stronger investment income -- to reach 35.5 million euro (26.8 million euro). The specialty insurance business group boosted its contribution to Group net income by 43.3% to 27.9 million euro (19.4 million euro), producing earnings of 23 cents (16 cents) a share.
The investment performance was favourable. The sustained strong inflow of cash virtually offset the negative effects of price declines due to the rise in interest rates on international bond markets: the portfolio of assets under own management contracted by a mere 100 million euro compared to the position as at year-end 2005, amounting to 19.0 billion euro. Ordinary income excluding interest on deposits, on the other hand, surged by an impressive 25.2% to 399.4 million euro (318.9 million euro).
Profits on the disposal of investments were considerably lower than in the corresponding period of the previous year at 51.0 million euro (97.9 million euro). They contrasted with realised losses of 38.4 million euro (37.7 million euro). Write-downs on securities were again only marginal at 8.3 million euro (8.6 million euro). Purely due to substantially reduced interest on deposits of 108.6 million euro (173.0 million euro), net investment income came in 3.3% lower than in the previous year at 494.4 million euro (511.1 million euro).
Outlook
In view of the attractive market opportunities that are opening up to Hannover Re, especially in property/casualty and life/health reinsurance, the company is looking forward to a very good result for the full 2006 financial year -- provided the major loss burden remains within the multi-year average and there are no unexpected downturns on capital markets.
By and large, rates and conditions in property and casualty reinsurance remain good. The outcome of the treaty renewals has demonstrated that in most segments the "hard" market is still holding firm. The renewal phase in the USA as at 1 July - the date when around one-third of our U.S. portfolio is renegotiated -- confirmed this trend. Significant price increases of up to more than 100% were pushed through in segments that had been especially hard hit by last year's hurricane losses. Developments in the casualty lines were also relatively gratifying, and with certain exceptions prices were generally stable. What is more, Hannover Re expects market conditions for catastrophe-exposed property business to improve still further in October's upcoming renewal phase. "Our portfolio is superbly diversified and hence offers us every opportunity in the prevailing market climate," Mr. Zeller emphasised. As part of its risk management policy, Hannover Re has long made use of structured reinsurance concepts and risk transfers to the capital market as well as traditional coverage solutions in order to protect its portfolio. With its placement of "Eurus" the company for the first time added the classic catastrophe bond to its array of risk management tools.
Hannover Re expects property and casualty reinsurance to deliver a very healthy profit contribution, provided the burden of major losses remains within the multi-year average of roughly 8% of net premium.
The growth opportunities that are available in life and health reinsurance should facilitate a double-digit increase in both the premium volume and the result. The targeted EBIT margin of 5% will be achieved.
In financial reinsurance Hannover Re expects the resurgence of interest in structured solutions to be sustained and considers double-digit premium growth to be within reach. The contribution to Group net income is likely to be gratifying.
The primary focus in the specialty insurance business group is on further boosting profitability. For the full financial year Hannover Re expects a positive result comfortably above the cost of capital.
Turning to the investment portfolio, the anticipated positive cash flow should make it possible to enlarge the asset volume over the full financial year. Ordinary income from assets under own management should rise sharply due to higher interest rates.
In light of the development of the business groups described above, Hannover Re is looking to a very good result for the full 2006 financial year. "Subject to the premise that the burden of major losses remains within the bounds of the multi-year average and provided there are no downturns on the capital markets, we expect to generate a return on equity of at least 15%," Mr. Zeller stated. As for the dividend, the company is aiming for a payout in the range of 35% to 40% of Group net income.
Hannover Re, with a gross premium 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 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.