HANNOVER, Germany, April 14, 2003 (PRIMEZONE) -- Hannover Re (Other OTC:HVRRF):
- Above-average premium growth (8% gross, 18% net; property and casualty reinsurance 22%, program business 71% for net account)
- Highest operating profit in company history
- Return on equity greater than 15%
- Dividend yield greater than 4%
In its 2002 group financial statements Hannover Re followed up on the outstanding results of the years prior to 2001.
As reported by Wilhelm Zeller, Chairman of the Executive Board, at the press briefing on the annual results in Hannover, Hannover Re was able to post the best result achieved by the company in operating terms since it was first established.
Mr. Zeller emphasized: "This is all the more remarkable given the fact that 2002 was an extremely difficult year overall". Net income in the year under review totalled 267.2 million euro, or 2.75 euro a share (previous year: 11.1 million Euro, or 11 cents a share).
"All four business groups made positive contributions to this performance. With the exception of financial reinsurance -- which in the previous year was influenced by extraordinary factors -- the total premium volume was significantly increased. Following a strong surge in the previous year Hannover Re's gross premium income grew by a somewhat less vigorous 8.3% in the year under review to 12.5 billion Euro (previous year: 11.5 billion euro)."
"Had it not been for the rise of the euro, especially against the US dollar, another double-digit increase of 12.6% would have been recorded. Net premiums earned climbed by 18.4% to 7.7 billion euro (previous year: 6.5 billion Euro) due to the higher level of retained premiums. In property and casualty reinsurance the market was characterised by significant rate increases and improvements in terms and conditions."
"Hannover Re's strategy in cyclical business groups is to expand its market share only during 'hard market phases,'" explained Mr. Zeller, adding: "We were therefore quick to pro-actively exploit the favourable market conditions and systematically enlarged our market share with a strict profit orientation". Gross written premiums were boosted by a further 21.9% to 6.0 billion euro (previous year: 4.9 billion euro).
"Premium growth in property and casualty reinsurance was similarly hampered by the weakness of the US dollar. Had it not been for this currency effect, gross premium income would have risen by as much as 25.8%. Net premiums earned increased by 17.2% to 3.5 billion euro (previous year: 3.0 billion Euro). The profitability of the business is borne out by the underwriting result, which -- with a profit of EUR 130.8 million -- returned to the black for the first time since 1995.
"In the previous year, by contrast, Hannover Re had booked an underwriting loss of 481.3 million euro owing to the losses associated with the attacks on the World Trade Center in New York. Accounting for 5 percentage points of the loss ratio, the net burden of catastrophe losses in the year under review was in line with the multi-year average. The largest single loss event was the disastrous flooding in central Europe, which produced a net burden of 69.7 million Euro. A remarkably low combined ratio of 96.3% was achieved despite the catastrophe losses. This impressively bears out the quality of the business. For the fourth quarter the combined ratio was negative due to a systematically applied conservative reserving policy and an increased loss incidence towards the end of the year.
"Unlike many of its competitors, Hannover Re is not compelled to contend with the sins of the past and therefore had no need to constitute any additional reserves for prior losses under US liability business. Although the capital market situation had a particularly adverse effect in property and casualty reinsurance -- especially in the fourth quarter of 2002 -- it was still possible to generate a gratifying operating result (EBIT) of 305.6 million euro (previous year: -40.5 million Euro). Net income amounted to 154.1 million Euro, or 1.59 Euro a share, compared with a net loss of 75.5 million Euro, or -75 cents a share.
"The life and health reinsurance business group also asserted its position well in a similarly favourable environment. Gross premium income including premium deposits of 255.7 million Euro for unit-linked life and annuity products, which under U.S. GAAP are not recognised as premiums, grew by 2.5% to 2.7 billion Euro. Gross premiums would have grown by as much as 8.2% had exchange rates held stable. As anticipated, the volume of business in life and health reinsurance was especially high in the fourth quarter. Indeed, 35% of the total gross premium income for the year was booked in this quarter alone. Net premiums earned - excluding premium deposits -- increased by 23.1% in 2002 owing to the fact that a significantly smaller portion of the business was retroceded. Growth impetus in life and health reinsurance derived primarily from Germany, the other European markets (e.g. the United Kingdom) and Asia. The German market's hopes of success with the partial privatisation of old-age provision -- the so-called 'Riester' pension -- were not fulfilled, although a modest upturn was observed in the second half of the year. The operating result (EBIT) contracted slightly by 4% year-on-year to 48.5 million Euro. Net income, however, grew by 29.1% to 30.0 million Euro, or 31 cents a share (previous year: 24 cents).
"Financial reinsurance developed according to plan in 2002. Hannover Re ranks among the three largest providers of alternative reinsurance solutions. In the year under review, however, gross premiums declined to 1.2 billion Euro (previous year: 1.7 billion Euro). When making comparisons with the previous year (-28.6%), it should nevertheless be borne in mind that -- as an after-effect of the losses of 11 September 2001 -- considerable additional premiums were booked due to experience-based contracts. These were not, of course, repeated in the year under review. The decline in gross premium income would have been 3 percentage points smaller had exchange rates remained stable. In financial reinsurance the fourth quarter, as expected, generated particularly substantial premium income: 41.0% of the total volume, or 510.0 million Euro, was attributable to this quarter. Unlike in the previous year, the business was retained in full; net premiums earned were roughly on a par with the previous year at 1.2 billion Euro. The operating result (EBIT) declined to 47.8 million Euro (-27.2%). Net income contracted by 12.9% to 39.7 million Euro, or 41 cents a share (previous year: 47 cents a share)."
Mr. Zeller expressed considerable satisfaction with the development of program business, "Following the restructuring measures and organisational changes made by the new management of Clarendon Insurance Group, New York, we are back on a successful track here."
Clarendon significantly increased its premium volume and result. The gross premium income generated by all companies transacting program business within the Hannover Re Group climbed by 11.1% to 2.7 billion Euro. Growth would have been another 6.3 percentage points higher if exchange rates had remained stable.
Net premiums earned rose by 71.3% to 833.0 million Euro owing to a sharply higher level of retained premiums. The underwriting result was boosted by 29.3% to 51.9 million Euro. The combined ratio of 93.8% was gratifyingly low. Investment income also climbed sharply due to the higher retention. In the fourth quarter alone it almost doubled compared to the preceding quarter. The operating result (EBIT) increased to 69.0 million Euro (previous year: 33.6 million a share). The net income generated from program business amounted to 43.3 million Euro, or 45 cents a share (previous year: 17.8 million Euro, or 18 cents a share). Despite the extremely difficult state of the capital markets Hannover Re recorded net investment income on a par with the previous year. Ordinary investment income profited from another rise in the deposit interest booked in the life/health and financial reinsurance groups. In addition, the decline in interest rate levels was offset by the growth in the investment portfolio.
The downward slide on equity markets adversely impacted the investment performance. Write-offs on investments totaled 207.0 million Euro, of which 164.6 million Euro was attributable to equities. Due to the low equity allocation maintained by Hannover Re throughout the year -- it stood at just 5.7% as at year-end - and thanks to the high quality of the portfolio of fixed-income securities, write-offs and losses on disposals were kept within bounds. Overall, net investment income closed the year at 928.4 million Euro, a slight decline of 1.8%. Hannover Re was particularly satisfied that, despite the difficult capital market conditions, it was able to increase the balance of unrealised gains and losses by 92.9 million Euro to 143.3 million Euro as at year-end.
The operating result (EBIT) of the Hannover Re Group grew to 470.9 million Euro in the year under review (previous year: 109.2 million Euro), an outstanding achievement in view of the charges from write-offs on equities. After increased tax expenditure of 131.2 million Euro it was possible to generate net income of 267.2 million Euro, or 2.75 Euro a share (previous year: 11.1 million Euro, or 11 cents a share). Having omitted to pay a dividend in the previous year due to the losses associated with the terrorist attacks of 11 September, Hannover Re is resuming its accustomed dividend policy.
"We shall propose to the Annual General Meeting that the operating profit of the parent company be distributed in full to the shareholders", explained Mr. Zeller. "We propose that the book profit arising out of the transfer of the shares in E+S Ruck to an intermediate holding company should be allocated to additional paid-in capital in order to reinforce our financial strength." Outlook for 2003 In property and casualty reinsurance the markets continue to offer very good profit opportunities. In the treaty renewals as at 1 January 2003 -- the date on which around two-thirds of our treaties are renegotiated -- it was possible to obtain broad-based rate increases and improvements in terms and conditions. In certain segments, however, early signs of softening can already be detected, e.g. in aviation.
" Hannover Re has already slightly reduced its involvement in such lines." As Mr. Zeller concluded: "All in all, after the sharp increases over the past two years, our growth in property and casualty reinsurance will be considerably more restrained. Given a normal burden of losses, it is our assumption that the performance of this business group will again be very good in 2003."
The favourable development of life and health reinsurance is also expected to be sustained. Unit-linked life and annuity products will be able to consolidate their sizeable market share despite the adverse movements on equity markets. In addition to portfolio enlargement in Germany and other European markets, Asia is expected to provide further growth impetus. Assuming a normal underwriting experience, the profit contribution is expected to be highly favourable. Financial reinsurance is likely to see rising demand for individually tailored solutions to clients' problems. Even though premium growth is less vigorous than in recent years, Hannover Re expects premiums in this business group to increase and it anticipates a result at least on a par with the previous year.
Program business will also continue its positive development. As Mr. Zeller stressed: "We shall press ahead purposefully with the reorientation of Clarendon and attach the highest priority to the profitability of the business."
What is more, the two other companies writing program business within the Hannover Re Group, namely Inter Hannover in London and Compass Insurance in South Africa, are continually expanding their markets in Europe and South Africa. Overall, renewed growth in results should be possible. In the current economic climate it is particularly difficult to make forecasts about the net investment income. In the light of the uncertain state of the stock markets Hannover Re will maintain its low equity allocation.
Mr. Zeller emphasised: "In view of the extremely difficult situation currently prevailing on the capital markets, we feel vindicated in our defensive investment policy and are well-positioned for the current financial year." Taking into account all the expectations regarding the development of the various business groups, assuming a loss experience within normal parameters and provided there are no further adverse surprises on the capital markets, another increase in profitability should be attainable in 2003.
Hannover Re, with gross premiums of 12.5 bn. Euro, is the fifth-largest reinsurer in the world. It transacts all lines of property/casualty, life/health and financial/finite-risk reinsurance as well as program business. It maintains business relations with more than 2,000 insurance companies in over 100 countries. Its worldwide network consists of more than 100 subsidiaries, branch and representative offices in 19 countries. The rating agencies most relevant to the insurance industry have each awarded Hannover Re their second-highest rating (Standard & Poor's AA "Very Strong" and A.M. Best A+ "Superior").