HANNOVER, Germany, March 29, 2004 (PRIMEZONE) --
-- Highest operating profit (EBIT) in company's history
-- Combined ratio in property and casualty reinsurance 96.0%
-- Financial reinsurance triples operating profit
-- Net income in life and health reinsurance increases by
more than half
-- Return on investments surpasses five-percent mark
-- Policyholders' surplus 3.7 billion euro (previous
year: 3.0 billion euro)
-- Return on equity 17.1% (15.7%)
-- Proposed dividend: + 11.8% to 95 cents a share (85 cents)
The 2003 financial year was once again a highly successful one for Hannover Re. As Wilhelm Zeller, Chairman of the Executive Board, reported at the press conference on the annual results in Hannover, the company recorded the best operating result in its history. As Mr. Zeller emphasised: "This is all the more remarkable given the fact that investment income - owing to market factors - only generated an average contribution and the weak US dollar adversely impacted two-thirds of our gross premium volume". The operating profit (EBIT) was boosted by 55.5% to 732.1 million euro (470.9 million euro). Net income for the year under review totalled 354.8 million euro (267.2 million euro) or 3.24 euro (2.75 euro) a share. All four business groups made positive contributions to this performance.
Gross premium income contracted by 9.0% to 11.3 billion euro (12.5 billion euro). This decline was due to exchange-rate effects as well as restructuring activities, most notably in property and casualty reinsurance. At constant exchange rates, especially without the 21.1% depreciation of the US dollar against the euro, gross premiums would have risen by 1.9%. Net premiums earned increased by 6.1% to 8.2 billion euro (7.7 billion euro) due to the higher level of retained premiums.
Appreciable rate increases and improved terms and conditions were the dominant features of the property and casualty reinsurance market in 2003. In areas where a flattening-off or even a decline could already be observed, the premium level nevertheless remained highly satisfactory. "Independently of our normal cycle management, we used the hard market to optimise our portfolio in light of long-term profitability considerations and scale back specific acceptances", Mr. Zeller emphasised. Furthermore, Hannover Re no longer accepts the entire reinsurance volume of the HDI affiliates, but rather only the portion that it carries in its retention. Gross written premiums consequently contracted by 20.5% to 4.8 billion euro (6.0 billion euro). The decrease was also a result of the sharp upward revaluation of the euro against the US dollar. At constant exchange rates the reduction would have been only 13.9%. Due to a substantially higher retention of 72.2% (62.7%), net premiums remained stable at 3.5 billion euro.
After the disastrous flooding suffered in Europe in the previous year, the year under review witnessed significantly fewer insured major losses. The amount of 51.5 million euro -- a mere 1.5% (5.2%) of net premiums -- was well below the multi-year average. The largest recorded loss event was a series of tornadoes in the USA in May, causing net claims expenditure of 16.3 million euro. The quality of the portfolio was once again impressively borne out by the excellent combined ratio. Despite the higher proportion of long-tail business and a very conservative reserving policy, the figure of 96.0% improved slightly on the very good 96.3% achieved in the previous year.
The underwriting profit was boosted by 7.9% to 141.1 million euro (130.8 million euro), clearly underscoring the profitability of the property and casualty reinsurance portfolio. Below the line this also translated into a record operating profit that climbed by 52.4% to 465.9 million euro (305.6 million euro). Net income was hampered by sharply higher tax expenditure and thus reached 167.0 million euro (154.1 million euro) or 1.53 euro (1.59 euro) a share.
In life and health reinsurance the Group's position in the international arena was expanded, and Hannover Re - operating in this business group under the Hannover Life Re brand - now ranks among the top three life reinsurers worldwide. Gross premiums in the original currency grew by 2.2%; however, the devaluation of various foreign currencies - especially the US dollar against the euro - served to reduce gross premium income in the 2003 financial year to 2.3 billion euro (2.5 billion euro). The effect on net premiums earned, which contracted from 2.1 billion euro to 1.9 billion euro, was similar. The composition of the portfolio shifted in the year under review towards the preferred lines of life, annuity and personal accident business, which now account for altogether 80% (68%) of the total premium volume. EBIT improved by 25.8% to 61.0 million euro (48.5 million euro), and hence this business group, too, recorded its best operating result in company history. Net income for the year grew by more than 50% to 46.6 million euro (30.0 million euro) or 43 cents (31 cents) a share.
The development of financial reinsurance was exceptionally gratifying in 2003. Operating in this business group under the brand name Hannover Re Advanced Solutions, Hannover Re is one of the three largest providers in the world. "Under our underwriting policy we limit ourselves to classical financial reinsurance products and do not participate in capital-market-driven structured transactions", Mr. Zeller stressed. As part of the capital increase for a contribution in kind the majority shareholder, Talanx AG, transferred all its shares in HDI Reinsurance (Ireland) Ltd. to the Hannover Re Group effective 1 July 2003. This served to further reinforce the Group's capital strength and enhance its portfolio diversification. Gross written premiums were substantially boosted despite adverse currency effects, climbing by 31.4% to 1.6 billion euro (1.2 billion euro). Growth would have been as much as 48.5% at constant exchange rates. Net premiums earned were also in the region of 1.6 billion euro (1.2 billion euro). The operating profit (EBIT) tripled year-on-year to reach a record level of 148.2 million euro (47.8 million euro). Net income for the year surged by a triple-digit margin, rising by as much as 149.6% to reach 99.1 million euro (39.7 million euro) or 90 cents (41 cents) a share.
The program business of the Hannover Re Group is written primarily by its US subsidiary Clarendon Insurance Group, which is the undisputed market leader in the United States. "In recent years we have replaced around 50 % of all the programs with more profitable business. We are now increasingly reaping the rewards of this restructuring", Mr. Zeller noted. The "new" Clarendon generated satisfactory results. The gross premiums booked by all companies writing program business within the Hannover Re Group contracted by 3.0% to 2.6 billion euro (2.7 billion euro) solely due to exchange-rate factors; at constant exchange rates gross premium income would have increased by 15.4% compared to the previous year. With the level of retained premiums rising by 8.6 percentage points, net premiums earned grew by 38.8% to 1.2 billion euro (0.8 billion euro). Last year's gratifyingly low combined ratio of 93.8% increased to 98.3%: the result was burdened by the compromise settlement of legal disputes involving Clarendon with respect to old business; these expenditures are, however, being reclaimed from Clarendon's previous owners as per the contractual arrangements. The operating profit (EBIT) decreased solely because of these charges from 69.0 million euro to 57.1 million euro. The net income for the year generated from program business amounted to 42.2 million euro (43.3 million euro) or 39 cents (45 cents) a share.
Hannover Re is relatively satisfied with the development of net investment income. Based on the very good cash flow from the underwriting account, the total asset portfolio (excluding funds held by ceding companies) grew by a pleasing 13.1% to 14.4 billion euro (12.7 billion euro). At constant exchange rates, the asset volume would have grown by as much as 23.3%. "The excellent development of our reinsurance business combined with the successfully implemented capital increase in the second quarter produced a high net inflow of cash", Mr. Zeller explained. The ordinary income of 1.1 billion euro remained virtually on a par with the previous year. Bond yields declined worldwide in the year under review, thereby offsetting the additional returns generated by the larger asset portfolio. The disposal of investments produced a profit on balance of 140.7 million euro (93.3 million euro). The result here was improved by reduced write-downs on securities, which at 99.3 million euro came in significantly lower than in the previous year. Write-downs on equities amounted to 65.3 million euro in the year under review - with 46.0 million euro attributable entirely to the first quarter; the comparable figure for the previous year was 164.6 million euro. Total net investment income thus increased by a pleasing 15.4% to 1.1 billion euro (928.4 million euro), producing a return of 5.1% on the average asset portfolio (including funds held by ceding companies).
The operating profit (EBIT) of the Hannover Re Group surged by 55.5% in the year under review to 732.1 million euro (470.9 million euro), the best performance in the company's history. "The net income of 354.8 million euro (267.2 million euro) was also unparalleled, leaving aside the result in 2000, which was boosted by a non-recurring tax effect", Mr. Zeller explained. This produced earnings of 3.24 euro (2.75 euro) a share. The return on equity after tax increased by 1.4 percentage points in the year under review to 17.1%.
The combined capital increase for cash and a contribution in kind implemented in June 2003 strengthened the stockholders' equity of Hannover Re by 530 million euro; it now stands at 2.4 billion euro (1.7 billion euro). The issuance of 9.7 million shares as part of the capital increase for cash also served to enlarge the free float by around 40%, thereby significantly improving the liquidity and hence the attractiveness of the Hannover Re share. Under the capital increase for a contribution in kind Hannover Re received what is now Hannover Reinsurance (Dublin) Ltd. - formerly HDI Re (Ireland) Ltd. - against issuance of 13.7 million new shares. Thanks to this company's strong profitability the capital increase resulted in only minimal dilution for shareholders.
In accordance with the company's dividend policy the Executive Board and Supervisory Board will propose to the Annual General Meeting that an increased dividend of 95 cents (85 cents) a share be distributed. This corresponds to a dividend yield of approximately 3.4%.
Outlook for 2004
Most markets in property and casualty reinsurance still offer very good profit potential. During the treaty renewals as at 1 January 2004 -- when roughly two-thirds of treaties were renegotiated -- it was possible to obtain rate increases and improved conditions across virtually all segments or at least maintain the very good level already attained. Some premium erosion occurred in specific segments which had shown the strongest rate increases over the past two years.
This was especially true of aviation business, in which Hannover Re systematically scaled back its involvement. However, Hannover Re further enlarged its participation in North American casualty business -- a segment which has grown steadily more attractive. Provided the burden of major losses remains within normal bounds, property and casualty reinsurance should continue to develop very favourably in 2004. "We again expect this business group to generate by far the largest contribution to consolidated net income", Mr. Zeller affirmed.
Life and health reinsurance should also develop favourably in the current financial year. Demand for solutions in the areas of both risk-oriented coverage and old-age provision is set to rise steadily in almost all markets owing to the demographic trend. Particularly vigorous growth impetus is anticipated from the major insurance markets of the United States and Japan as well as in Continental Europe, especially in the segment of unit-linked products. Adjusted for exchange-rate effects, however, gross premium income is likely to show only minimal growth -- or possibly even a slight decline. Profitability should, however, continue to improve. Hannover Re anticipates appreciable double-digit growth in both the operating profit (EBIT) and net income.
In financial reinsurance demand for tailor-made solutions is expected to increase. Premium income, however, is likely to be lower in 2004 owing to the non-renewal of a number of high-volume contracts. It should nevertheless be possible to further boost profits in this business group in the current financial year.
The rate increases in program business will probably be less marked in 2004 than in the year under review owing to the emerging competitive pressure on the market. In Europe and South Africa Hannover Re will continue to extend its market position through its subsidiaries Inter Hannover and Compass. A substantially improved result is anticipated in 2004.
For 2004 Hannover Re forecasts -- subject to normal movements on the capital market -- a net investment income on previous year's level. The anticipated positive underwriting cash flow should further boost the volume of assets, and despite continuing low yields this should favourably impact investment income.
Hannover Re further optimised its capital resources with the successful placement of subordinated debt in the amount of 750 million euro in February 2004. In addition, the company almost entirely bought back the debt issued in 1999 with a volume of 400 million US dollars, thereby profiting from the euro's advantageous exchange rate against the US dollar.
Assuming that the burden of losses remains within the multi-year average and that there are no unexpected adverse movements on capital markets, Hannover Re is optimistic that it can once again significantly increase its profit. "We expect to achieve consolidated net income of 390 to 430 million euro and hence earnings of between 3.20 and 3.60 euro a share", Mr. Zeller concluded.
For further information, please contact Eric Schuh (tel. +49 / 511 / 56 04-15 00; fax +49 / 511 / 56 04-16 48, e-mail eric.schuh@hannover-re.com).
Hannover Re, with gross premiums of approximately EUR 11 billion, is one of the five largest reinsurance groups 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 3,000 insurance companies in about 150 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 awarded Hannover Re very strong insurer financial strength ratings (Standard & Poor's AA- "Very Strong" and A.M. Best A "Excellent").
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