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Hannover, Germany, Aug 3, 2007 - (Hugin via ACN Newswire) - Very pleasing half-yearly result
* Operating profit (EBIT) + 15.8% * Group net income + 14.2% * Non-life reinsurance highly satisfactory despite significant burden of catastrophe losses (net income for the reporting period + 9.4%) * Life and health reinsurance posts excellent result (net income for the reporting period + 75.8%) * Sale of Praetorian completed in Q2 * Return on equity 19.9%
Hannover, 3 August 2007: In its half-yearly report presented today Hannover Re expressed considerable satisfaction with the development of its business. "Our result as at 30 June 2007 is a good platform for achieving our 2007 profit target - namely a return on equity of at least 15 percent after tax", Chief Executive Officer Wilhelm Zeller affirmed.
Effective 31 May 2007 the sale of Praetorian Financial Group, Inc., the US primary insurer transacting specialty business, was successfully completed. The balance sheet structure of the Hannover Re Group has improved still further as a consequence of this sale; the provisional disposal profit amounts to 17.7 million euro. As in the first quarter, the after-tax result of Praetorian is reported in a separate line within the consolidated statement of income (net income from discontinued operations) in accordance with IFRS. The figures for the previous year have been adjusted accordingly in order to preserve year-on-year comparability.
"Following the sale of Praetorian we shall now concentrate exclusively on our core business of non-life and life/health reinsurance. With our strategic orientation as a 'Multi Specialist' we are positioned across a broad front and optimally diversified", Mr. Zeller emphasised.
The operating profit (EBIT) as at 30 June 2007 increased by 15.8% year-on-year to 467.7 million euro (403.9 million euro). Group net income improved by 14.2% to 293.0 million euro (256.6 million euro), generating earnings of 2.43 euro (2.13 euro) a share.
The gross premium booked by the Hannover Re Group contracted by 10.4 % to 4.5 billion euro (5.0 billion euro). The principal factors here were the sale of Praetorian and also the associated withdrawal of Clarendon from active specialty business. It was not possible to entirely offset these effects despite the vigorous growth achieved in life and health reinsurance. At constant exchange rates the decrease in gross premium would have been 7.8%. Given the increased retention of 85.8% (77.0 %), net premium came in 1.9% higher at 3.7 billion euro (3.6 billion euro).
The state of the market in non-life reinsurance, the largest business group, remains favourable after eight consecutive years of rate increases. The June/July treaty renewals in the United States passed off better than expected. Although modest rate deterioration was observed in property business, the price level is still adequate. In property catastrophe business prices largely remained on a high level; only in some subsegments were slight reductions in rates recorded. All in all, the business prospects in non-life reinsurance are most promising.
"The development of business in our domestic market is especially gratifying. In order to derive optimal benefit from the opportunities available in the attractive German market we increased our stake in E+S Rück, which bears sole responsibility within the Group for German business, by 10% as at 1 April 2007 to 65.8%", Mr. Zeller explained.
The gross premium income booked in total non-life reinsurance, which since the beginning of the year has also included structured covers (formerly financial reinsurance) and the remaining specialty business in the primary sector, contracted in line with expectations to 3.0 billion euro (3.7 billion euro) as at 30 June 2007, a fall of 20.5% compared to the same period of the previous year. At constant exchange rates, especially against the US dollar, the decline would have been 18.1%. Due to a significantly higher retention of 83.3% (73.2%), net premium earned fell by a less marked 7.3% to 2.3 billion euro (2.5 billion euro).
Following comparatively heavy expenditure on catastrophe losses in the first quarter - attributable to winter storm "Kyrill" in Europe -, the second quarter brought a number of catastrophe events on a small to moderate scale. They included, most notably, windstorm events in Australia and the Arab region as well as flooding in the United Kingdom. Overall, the total net burden of catastrophe losses and major claims for the second quarter amounted to 46.3 million euro; the figure for the first half-year totalled 214.5 million euro, corresponding to 9.2% of net premium in non-life reinsurance. The combined ratio stood at 101.9% (99.4%).
The net underwriting result came in at -56.1 million euro (-14.9 million euro). The operating profit (EBIT) in non-life reinsurance increased by 5.9% to 321.5 million euro (303.6 million euro). Group net income climbed by 9.4% to 241.4 million euro (220.6 million euro), equivalent to earnings of 2.00 euro (1.83 euro) a share.
The development of the life and health reinsurance business group as at 30 June 2007 was thoroughly gratifying, building seamlessly on the robust growth momentum of the 2006 financial year. Hannover Re operates under the Hannover Life Re brand in this business group and transacts its business on the basis of a "five pillar model". This encompasses the financing of new and existing business, the development of new markets and products (including for example special seniors' and annuity products), bancassurance, partnerships with large multinational insurance groups as well as traditional life, annuity, accident and health business. "This broad positioning ensures that we enjoy a promising portfolio and vigorous organic growth going forward", Mr. Zeller stressed.
In the United Kingdom our focus continues to be on enhanced annuities; in the United States special health products for senior citizens offer good growth opportunities. The company supports clients in the cultivation of new markets, assisting them inter alia with the design of insurance products according to Islamic principles as well as with marketing and distribution methods.
The gross premium volume in life and health reinsurance surged by a vigorous 19.5% to 1.5 billion euro (1.3 billion euro) as at 30 June 2007. At constant exchange rates growth would have come in at 22.8%. The level of retained premium increased slightly to 90.2% (88.0%). Net premium earned consequently climbed by as much as 22.5% to 1.4 billion euro (1.1 billion euro).
Hannover Re also expressed considerable satisfaction with the results trend as at 30 June 2007. The operating profit (EBIT) was boosted by 65.2% to 129.2 million euro (78.2 million euro). This amount includes extraordinary income of some 25 million euro from the write-back of reserves that are no longer required. The EBIT margin of 9.4% was comfortably in excess of the minimum target of five percent; even without the aforementioned special effects it would have reached 7.5%. Group net income increased by a very good 75.8% to 89.9 million euro (51.2 million euro); this is equivalent to earnings of 75 cents (42 cents) a share.
Hannover Re was similarly highly satisfied with the performance of its investments: the cash inflow into the technical account in conjunction with market movements and a weaker US dollar left the volume of assets under own management virtually unchanged from 31 December 2006 at 19.5 billion euro. Ordinary income excluding interest on deposits grew by 6.3 % due to the higher average yield in the asset portfolios to reach 409.5 million euro (385.1 million euro). As part of a proactive approach to portfolio management - especially in the area of equity securities - the highly favourable market trend was used to realise profits of 134.3 million euro (49.9 million euro) on the disposal of investments. This contrasted with roughly unchanged realised losses of 36.7 million euro (38.0 million euro). Net income from investments under own management climbed by 29.7% to 482.0 million euro (371.5 million euro). The interest on deposits of 98.0 million (112.4 million euro) showed a further decline owing to the planned reduction of funds held by ceding companies, particularly under old structured covers. Net investment income from the total portfolio improved by an appreciable 19.8% to 579.9 million euro (483.9 million euro) as a consequence of the highly gratifying performance of the assets under own management.
Outlook In view of the continued good profit opportunities available on many markets, not only in non-life and life/health reinsurance but also on the capital markets, Hannover Re is looking to a very good result for the full 2007 financial year.
"What is more, we have already reallocated the risk capital freed up by the sale of Praetorian to other attractive business avenues in the reinsurance sector", Mr. Zeller explained. By running a higher retention in the still lucrative property catastrophe segment it is possible to tap into promising scope for boosting profitability. Not only that, the expansion of life and health reinsurance, the cultivation of new markets in Central and Eastern Europe as well as in the high-growth Islamic reinsurance market - together with the increased stake in E+S Rück - all offer Hannover Re favourable opportunities for redeployment of freed up capital.
Market conditions in non-life reinsurance are still largely good, an observation supported by all the treaty renewal phases completed so far within the year. "This trend was confirmed most recently by the renewals as at 1 July 2007 in the United States, when around a third of our portfolio in North America was renegotiated", Mr. Zeller noted. Even though the hard market has now passed its peak and some ceding companies are raising their retentions, the rate level remains attractive overall. While some slight deterioration has been seen in property business, the rates for business written by our company are still commensurate with the risks. Rates in US catastrophe business continue to be on a high level, with only a few subsegments seeing modest erosion.
Notable major losses incurred so far in the third quarter are a plane crash in Brazil and renewed flooding in the southwest of England. The information currently available suggests that the earthquake and a typhoon that affected Japan will not lead to any significant loss expenditure.
All in all, the net premium volume for total non-life reinsurance should come in at least on a par with the previous year. Provided the burden of major claims remains within the expected bounds of around 8% of net premium, a gratifying profit contribution can be anticipated.
The market opportunities available in life and health reinsurance should facilitate double-digit organic premium growth and a similar rise in profits. Growth impetus is expected to derive from European and various Asian markets as well as from South Africa. Pilot projects in the US market aimed at tapping into growth opportunities for alternative sales channels with the aid of system-supported underwriting are also bearing fruit. The marketing of simple, transparent life insurance products can therefore be expected to unleash fresh growth stimuli in the US life market. For the business group as a whole we anticipate substantial enlargement of the premium volume and double-digit increases in results.
As far as the investment portfolio is concerned, the expected positive cash flow over the further course of the year should serve to boost the volume of assets. In a normal market environment the income from assets under own management should continue to increase.
In view of the developments described above Hannover Re expects to close the full 2007 financial year on a very good note. "Assuming that the burden of major claims is within the expected bounds and there are no downturns on capital markets, another excellent result should be attainable in the current year. Additional non-recurring income of around 180 million euro is expected from the reform of corporate taxation", Mr. Zeller noted. Yet even without the effect of tax reform Hannover Re anticipates a result in excess of that in 2006. It remains the company's intention to pay out a dividend in the range of 35% to 40% of the normalised result.
For further information please contact:
Press and Public Relations / Investor Relations: Stefan Schulz (tel. +49 / 511 / 56 04-15 00, e-mail: stefan.schulz@hannover-re.com)
Press and Public Relations: Gabriele Handrick (tel. +49 / 511 / 56 04-15 02, e-mail: gabriele.handrick@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.
