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Hannover, Germany, Mar 12, 2008 - (ABN Newswire) - Hannover Re generates another record result
* Operating profit (EBIT) + 14.6% * Group net income + 42.6% * Return on equity 23.5% * Major loss burden in line with expectations * Book value per share + 15.6% * Proposed dividend: 1.80 euro + 50 cent bonus * Goals for 2008 - Return on equity > 15% - Earnings per share in the region of 5 euro
Hannover, 12 March 2008: Hannover Re enjoyed another highly successful financial year in 2007. "We surpassed our profit targets and reported the highest Group net income in our company's history", Chief Executive Officer Wilhelm Zeller announced at the press briefing on the annual results held in Hannover. Even without the special effect associated with the tax reform in Germany, Hannover Re would have recorded the best result since it was first established.
The operating profit (EBIT) - which does not include the profit of around 22 million euro booked by the Praetorian Financial Group, Inc. - was boosted by 14.6% to 940.0 million euro (819.9 million euro). Group net income surged by 42.6% to 733.7 million euro (514.4 million euro). Even without the special effect of corporate tax reform amounting to 164.7 million euro (after minority interests), Hannover Re would have achieved a record result of 568.9 million euro. The earnings per share climbed from 4.27 euro to 6.08 euro (of which 1.37 euro derived from the special effect associated with tax reform).
The gross written premium of the Hannover Re Group contracted as expected by 11.1% to 8.3 billion euro (9.3 billion euro). This was attributable to the sale of Praetorian and the associated withdrawal from US specialty business. The vigorous growth generated in life and health reinsurance failed to offset these influencing factors. At constant exchange rates the decrease in gross premium would have been 8.0%. The level of premium retained within the Group climbed 11.1 percentage points year-on-year to reach 87.4%. Net premium consequently increased by 2.8% to 7.3 billion euro (7.1 billion euro).
The return on equity stood at 23.5%; without the extraordinary effect of the tax reform it would have been 18.2%.
Hannover Re's financial strength was further reinforced in the year under review: shareholders' equity grew by 15.6% to 3.3 billion euro (2.9 billion euro). The policyholders' surplus (including minority interests and hybrid capital) climbed 8.5% to 5.3 billion euro, compared to 4.9 billion euro in the previous year.
The state of the market in non-life reinsurance remained favourable in the year under review. Although the hard market has now passed its peak, the rate level - with a few exceptions - held stable. In areas that saw more appreciable rate reductions, for example in aviation business, prices were still coming from a thoroughly adequate level. "We are especially satisfied with the development of our business in Germany and in the credit and surety lines", Mr. Zeller stressed.
Due to the sale of US specialty business, lower premium income in the area of structured products and a reduction in peak exposures, the gross written premium in non-life reinsurance contracted by 20.1% to 5.2 billion euro (6.5 billion euro). At constant exchange rates, particularly against the US dollar, the decrease would have been 17.3%. The level of retained premium rose by 12.9 percentage points to 85.3% (72.4%). Net premium consequently fell by a mere 4.7% to 4.5 billion euro (4.7 billion euro).
The burden of catastrophe losses and major claims was considerably heavier than in the previous year. Winter storm "Kyrill" was particularly notable in this regard. For Hannover Re this event produced a net loss burden of 115.6 million euro. A number of less substantial natural catastrophe losses as well as several major claims were also incurred. All in all, the net strain from catastrophe losses and major claims totalled 285.4 million euro (107.3 million euro). This figure is equivalent to 6.3% (2.3%) of the net premium booked in non-life reinsurance and is thus within the expected bounds of 8%.
The combined ratio stood at 99.7% (100.8%), a figure that reflects the current portfolio mix: Hannover Re continues to set aside prudent levels of reserves, especially for more recent years in long-tail casualty business. The underwriting result nevertheless improved to -26.7 million euro, after -71.0 million euro in the previous year.
Net investment income in non-life reinsurance declined by 5.8% in the year under review to 783.3 million euro (831.7 million euro). The operating profit (EBIT) developed most satisfactorily: despite reduced premium income it came in on a par with the previous year at 667.6 million euro (670.1 million euro). The EBIT margin consequently improved to 14.8% (14.2%). Net income in non-life reinsurance climbed 17.1% to 560.5 million euro (478.5 million euro). The special effect resulting from the reduction in deferred taxes amounted to 118.6 million euro (after minority interests). Earnings per share grew to 4.65 euro (3.97 euro), of which 98 cents can be attributed to the special effect of the tax reform.
Hannover Re was extremely satisfied with results in life and health reinsurance. "The development of our business can be rated excellent. We not only achieved our premium and profit targets, we comfortably surpassed them", Mr. Zeller asserted. Hannover Re, which operates in this business group under the Hannover Life Re brand, sees clear growth potential for annuity insurance in the area of individual retirement provision in the industrialised nations. The largest single market is the United Kingdom, where the company's focus remains on enhanced annuities. In life and health reinsurance, as in non-life reinsurance, Hannover Re is also cultivating the emerging market of (re)insurance transacted in accordance with Islamic law. In this area the company offers its clients new products and supports them with an eye to marketing and sales methods.
Gross written premium in life and health reinsurance exceeded the 3 billion euro threshold for the first time in the year under review, growing by 10.4% to 3.1 billion euro (2.8 billion euro). At constant exchange rates growth would have come in at 14.0%. The level of retained premium climbed by 5.4 percentage points to 90.8%. Net premium earned consequently rose by a more vigorous 17.8% to 2.8 billion euro, compared to 2.4 billion euro in the previous year.
Hannover Re boosted its operating profit (EBIT) in life and health reinsurance by 65.4% to 230.8 million euro (139.5 million euro); this includes special effects associated inter alia with the commutation of contracts concluded in previous years in an amount of roughly 30 million euro. The EBIT margin rose to 8.3% (5.9%). Even after elimination of the special effects it would have reached 7.2%, a figure comfortably in excess of the targeted 5%. Net income improved by a gratifying 83.9% to 188.7 million euro (102.6 million euro); the positive effect associated with the reform of corporate taxation totalled 46.1 million euro (after minority interests). Earnings per share stood at 1.57 euro (85 cents), of which 38 cents was attributable to the special effect of tax reform.
Hannover Re expressed similar satisfaction with the development of its investment income. The relatively modest rise in assets under own management - compared to the previous year - primarily reflected the downward slide of the US dollar: the portfolio of assets under own management grew by 1.6% to 19.8 billion euro (19.5 billion euro) as at 31 December 2007. Ordinary income excluding deposit interest nevertheless improved on the previous year by 8.4% to 859.0 million euro (792.6 million euro). On balance, deposit interest and expenses contributed 220.1 million euro (221.9 million euro) to net investment income. As part of the company's proactive approach to portfolio management - especially in relation to equities - profits of 244.0 million euro (305.1 million euro) were realised on the disposal of investments. This contrasted with realised losses of 69.7 million euro (87.7 million euro). Compared to the previous year, the positive balance of realised gains and losses thus declined to 174.3 million euro (217.4 million euro). Write-downs on securities totalled 71.4 million euro (15.0 million euro), of which 34.2 million euro (7.8 million euro) were taken on equities. Net investment income thus came in 5.7% lower than in the previous year at 1,121.7 million euro (1,188.9 million euro).
"Our conservatively oriented, well diversified portfolio was scarcely affected by the crisis on the US housing market. Given our modest holding - relative to the total asset volume - of securities with subprime exposure, our write-downs in this connection were negligible at around 10 million euro", Mr. Zeller emphasised.
Overall, Hannover Re was highly satisfied with its 2007 financial year: "In view of the outstanding development of our business and in accordance with our dividend policy of distributing between 35% and 40% of net income, the Executive Board and Supervisory Board will propose to the Annual General Meeting that a dividend of 1.80 euro as well as a bonus of 50 cents be paid", Mr. Zeller announced.
Outlook Based on its strategic orientation, the available market opportunities in non-life reinsurance and especially life/health reinsurance as well as the current state of the capital markets, Hannover Re anticipates another good result in 2008. Both gross and net premium should grow by around 5% in original currencies.
In non-life reinsurance Hannover Re is well placed as a Multi-Specialist to continue to operate profitably even as the market becomes increasingly difficult. Despite appreciable softening tendencies in the market, rate reductions in the treaty renewals as at 1 January 2008 were more modest than anticipated, and to a very large extent the prices and conditions obtained were thus commensurate with the risks. Increases in the German market as well as in worldwide credit and surety reinsurance will likely offset premium declines in some areas, and non-life reinsurance net premium in original currencies should therefore remain stable. "Since the effects of incipient market softening are only reflected in the statement of income after a certain time lag for systemic reasons, 2008 should bring an increase in the operating profit", Mr. Zeller explained. In the current financial year Hannover Re has incurred two catastrophe losses to date: the snowstorm in southern China led to an estimated net burden in the order of 10 million euro, while in the case of winter storm "Emma" it is still too early to reliably estimate the resulting loss expenditure.
In life and health reinsurance Hannover Re expects the dynamic pace of growth to continue unabated. Long-term growth impetus in international life and annuity will be driven by the demographic trend in industrialised countries, the retirement of the baby boomer generation and the rapid emergence of a middle class in many developing countries. A special focus is on the expansion of activities in Asia: in the first half of the current year Hannover Re plans to commence operational business at its branches in China and South Korea. In India Hannover Re will set up a service company to leverage the future potential of the local life insurance market over the long term. "For 2008 we are looking to continued favourable profitability and double-digit premium growth in original currencies", Mr. Zeller explained.
Turning to investments, the expected positive cash flow which Hannover Re generates from its technical account and from the investment portfolio will lead to further growth in the volume of assets. Assuming that capital markets settle down in the course of the year, the company expects to increase the income from assets under own management. In the area of fixed-income securities the stress placed on the high quality and diversification of the portfolio will be maintained; combined with investments in equities, this should make it possible to generate another stable profit contribution.
With market conditions expected to remain acceptable, and given the broad diversification of the company's reinsurance business and investment portfolio, Hannover Re anticipates another good result for the full 2008 financial year. "Provided the burden of major losses does not significantly exceed the adjusted expected level of 10% of net premium in non-life reinsurance and assuming capital markets stabilise, we expect to see a return on equity in excess of 15 percent and earnings per share of around 5 euro for the 2008 financial year", Mr. Zeller affirmed. As for the dividend, the company continues to aim for a payout ratio in the range of 35% to 40%.
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 8 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 1,800. 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.
