-- Growth in gross premium income +8.9%
-- Operating profit (EBIT) +38.6%
-- Net income for the quarter +7.6%
-- All four business groups generate positive result above the
cost of capital
-- Return on equity 16.2%
HANNOVER, Germany, May 12, 2006 (PRIMEZONE) -- Hannover Re expressed considerable satisfaction with its start to the new financial year. "With our quarterly result we have taken a first major step towards achieving our defined profit target for 2006," Chief Executive Officer Wilhelm Zeller affirmed.
Market conditions in property and casualty reinsurance continued to be highly advantageous, and the company generated very profitable business. Mr. Zeller was particularly satisfied with the favourable development of the specialty insurance business group and the revival of financial reinsurance. In life and health reinsurance also results came in as anticipated. "All underwriting business groups lived up to our expectations," Mr. Zeller concluded.
The operating profit (EBIT) in total business climbed by 38.6% compared to the first quarter of the previous year to reach 214.3 million euro (154.6 million euro). Since tax expenditure was substantially higher than in the first three months of the previous year, Group net income as at 31 March 2006 grew by a mere 7.6% to 105.7 million euro (98.3 million euro), producing earnings of 88 cents (81 cents) a share.
Hannover Re's capital base remains strong: shareholders' equity climbed by around 18 million euro compared to the position as at 31 December 2005 to reach 2.6 billion euro.
Gross written premium totalled 2.8 billion euro (2.6 billion euro), an increase of 8.9% relative to the first quarter of the previous year. Exchange-rate effects accounted for 6.5% of this growth. The level of retained premium rose to 87.3%, causing net premium to surge by as much as 12.2% to 2.0 billion euro (1.8 billion euro).
The treaty renewals in property and casualty reinsurance as at 1 January -- the date when roughly two-thirds of the company's entire portfolio is renewed -- passed off highly satisfactorily for Hannover Re; the hard market has been sustained. Even though not all of its expectations were fulfilled, the company was able to improve still further on the already very good rate level of the previous year in large parts of the portfolio. The updating of pricing models to include loadings for components that had hitherto been disregarded or inadequately modelled also played a part in the favourable rate development, and especially in U.S. natural catastrophe reinsurance Hannover Re was able to obtain significant rate increases. "By adjusting our pricing models and reducing peak risks we have made our portfolio considerably more weather-proof and are hence optimally prepared to face the challenges of the current year," Mr. Zeller emphasised.
Reserves were established for new business on the accustomed conservative basis. Once again, there was no need on balance to constitute additional reserves for previous underwriting years.
Gross premium in property and casualty reinsurance came in 6.3% higher than in the same period of the previous year at 1.4 billion euro (1.3 billion euro). At constant exchange rates, especially against the U.S. dollar, growth would have been just 1.4%. The retention climbed 1.2 percentage points to 88.4%. Net premium earned grew by 19.2% to 1.0 billion euro (0.9 billion euro).
On the claims side the first quarter developed in line with the company's expectations. Four major claims were recorded: a satellite loss, a marine claim, a fire loss and cyclone "Larry" in Australia. Total major loss expenditure for net account stood at 40.0 million euro (93.3 million euro). This figure corresponds to 3.9% of net premium in property and casualty reinsurance and is thus well within the multi-year average of 8%. The combined ratio stood at 98.5% (96.8%) and reflects a conservative and risk adjusted reserving of the first quarter.
The underwriting profit contracted from 27.1 million euro to 14.8 million euro. The operating profit (EBIT) generated by property and casualty reinsurance came in sharply higher, rising by 55.6% to 121.9 million euro (78.4 million euro). Group net income increased by 11.4% to 60.7 million euro (54.5 million euro), equivalent to earnings of 51 cents (45 cents) a share.
In life and health reinsurance, too, the first quarter progressed according to plan: once again Hannover Re was able to enlarge the business volume. Growth impetus derived primarily from European markets, including for example the United Kingdom -- where particularly strong new business was written in the area of annuity insurance. "It continues to be the case that the demographic trend in the developed industrialised nations is driving growth in annuity and health insurance," Mr. Zeller explained. Gross premium in this business group rose by 11.9% to 605.7 million euro (541.4 million euro). At constant exchange rates, however, growth would have been only 6.6%. The level of retained premium fell by 6.8 percentage points to 87.7% due to the latest capital market transaction ("L6"), as a consequence of which net premium earned showed less marked growth of 3.4% to reach 525.8 million euro (508.4 million euro).
"Although in life and health reinsurance the third and fourth quarters, in particular, are traditionally the strongest in terms of premium income and profitability, the volume of business as at 31 March was already highly gratifying," Mr. Zeller noted. Hannover Re, which operates worldwide in this business group under the Hannover Life Re brand, generated an operating profit (EBIT) of 25.9 million euro (25.6 million euro). Group net income declined compared to the same period of the previous year to 14.0 million euro (17.5 million euro) as a consequence of higher minority interests. Life and health reinsurance thus contributed earnings of 12 cents (14 cents) a share to the Group's result.
Together with the results for the first quarter Hannover Re is reporting today for the first time the European Embedded Value (EEV) for the 2005 financial year. This replaces the calculation of the value of in-force business and constitutes an actuarial evaluation of the life and health (re)insurance portfolio. The EEV for Hannover Re amounts to 1.3 billion euro, a highly gratifying increase of 8.2% compared to 2004. Both the business and the profitability have developed favourably: the operating embedded value earnings amounted to 112.5 million euro, while the value of new business totalled 84.7 million euro.
All in all, Hannover Re was satisfied with the business development in financial reinsurance. Following appreciable decreases in premium volume in the preceding quarters, interest in financial reinsurance products is now picking up again as anticipated. The focus here is on structured products with a risk transfer. "I am confident that this trend will be sustained in the course of the year," Mr. Zeller added. Hannover Re was able to further expand its business, especially in the markets of Eastern Europe and Asia. Yet other regions too, including the USA, saw a resurgence of demand -- first and foremost for surplus relief contracts.
Gross written premium increased by a substantial 27.2% as at 31 March 2006 to reach 450.1 million euro (353.8 million euro). At constant exchange rates the growth would have amounted to 18.7%. The level of retained premium climbed 9.4 percentage points to 96.0%. Net premium earned grew by 20.8% to 237.5 million euro (196.7 million euro).
The operating profit (EBIT) improved by 7.2% to 27.5 million euro (25.6 million euro). Group net income came in 6.8% higher than in the corresponding quarter of the previous year at 19.1 million euro (17.9 million euro), equivalent to earnings of 16 cents (15 cents) a share.
In the first quarter of 2006 Hannover Re fundamentally reorganised the specialty insurance business group in the USA: the specialty business that forms the strategic focus of these activities was assumed by the newly established Praetorian Financial Group, while the Clarendon Insurance Group -- also based in New York -- that had previously borne responsibility for this business group will now concentrate on the professional management of expired programs as well as on commodity business. "The results for the first quarter clearly show that in this business group, too, we are on the right track," Mr. Zeller emphasised.
Gross written premium increased by 23.7% to 520.5 million euro (420.8 million euro). At constant exchange rates growth would have amounted to 12.8%. The retention stood at 49.7%, compared to 53.3% in the corresponding quarter of the previous year. Net premium earned declined by 5.8% to 213.2 million euro (226.4 million euro).
The combined ratio improved on the first three months of the previous year to a very good 91.6% (96.0%), hence impressively demonstrating the superior quality of the portfolio. The operating profit (EBIT) as at 31 March 2006 surged higher by a very substantial 83.2% to 28.8 million euro (15.7 million euro). Group net income generated by the specialty insurance business group climbed 49.2% to 18.7 million euro (12.5 million euro), producing earnings of 16 cents (10 cents) a share.
Hannover Re similarly declared itself highly satisfied with the development of its investments. The sustained strong cash flow in the first quarter more than offset the effects of yield increases on international bond markets as well as the implications of a sharply higher euro compared to year-end 2005, with the result that the portfolio of assets under own management grew by 1.2% over the quarter to 19.3 billion euro. Ordinary investment income excluding deposit interest profited inter alia from the higher average yields in the portfolio and a firmer U.S. dollar relative to the same period of the previous year; it climbed by a vigorous 36.0% to 193.8 million euro (140.3 million euro). Profits from the disposal of investments totalled 22.3 million euro (20.6 million euro) as against realised losses of 13.1 million euro (7.3 million euro). Write-downs on securities were scarcely a factor at 3.6 million euro (2.1 million euro). The net investment income improved on the corresponding quarter of the previous year by a mere 2.3% to 245.2 million euro (239.8 million euro) due to sharply lower deposit interest.
Outlook
In view of the highly attractive market opportunities that are opening up Hannover Re anticipates a very good result for the full 2006 financial year.
In property and casualty reinsurance rates and conditions remain on a good level. This is also reflected in the outcome of the recent round of treaty renewals for Japan as at 1 April 2006; rates for windstorm risks, in particular, saw further increases. It is Hannover Re's expectation that market conditions in property insurance will show further improvement in the subsequent renewal phases in June/July and October. "In view of sharply higher prices on the retrocession market we are increasingly turning to other forms of risk limitation, including for example structured covers or securitisations. In the first quarter we extended our 'K5' capital market transaction to a volume of 414 million U.S. dollars," Mr. Zeller noted. Since exposures to catastrophe risks were also reduced, the portfolio is positioned highly promisingly. Provided the burden of major losses remains within the multi-year average of around 8% of net premium, Hannover Re expects property and casualty reinsurance to deliver a very good profit contribution.
The growth opportunities available in life and health reinsurance should enable the company to boost both premium volume and the result by a double-digit percentage margin. The targeted 5% EBIT margin is attainable as things currently stand.
In financial reinsurance Hannover Re expects to see the recent revival of interest in financial reinsurance products to be sustained. The contribution to Group net income is again likely to be highly attractive.
In the specialty insurance business group the focus will continue to be on boosting profitability. For the full financial year Hannover Re is looking to a positive result significantly above the cost of capital.
On the investments side the anticipated positive cash flow should facilitate an enlarged asset volume. Income from investments is also likely to increase overall, and net investment income can therefore be expected to come in higher.
Given the development of the various business groups described above, Hannover Re anticipates a very good result for the full 2006 financial year. "Assuming that the burden of major losses remains within the multi-year average and there are no adverse movements on capital markets, we expect to achieve a return on equity of at least 15%," Mr. Zeller stated. The company is looking to pay a dividend 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/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.
Key Figures: