HANNOVER, Germany, Aug. 12, 2004 (PRIMEZONE) -- Hannover Ruckversicherungs-AG:
-- Profits rise again with planned reduction of gross premium
volume
-- Operating profit (EBIT) + 31.6%
-- Net income + 30.2%
-- Net investment income + 16.6%
-- Combined ratio in property and casualty reinsurance 94.3%
(previous year: 98.6%)
In its interim report released today Hannover Re declared itself highly satisfied with the development of business in the first half of 2004.
The company continued to profit from the advantageous conditions prevailing on the reinsurance markets. The operating profit (EBIT) as at 30 June 2004 climbed to 375.4 million euro, an increase of 31.6% compared to the first half-year 2003. Net income showed a similarly sharp increase of 30.2% to reach 211.5 million euro, or 1.75 euro (1.65 euro) a share. All four business groups contributed to this performance. "This business development puts us absolutely on track to achieve our ambitious profit targets for the full financial year", Wilhelm Zeller, Chairman of the Executive Board, explained. "A significant decline in gross premium income, due in part to our proactive cycle management, is in no way cause for concern. Quite the contrary, we have once again demonstrated that profitability alone is what counts in our industry, not volume."
As in the previous quarter, gross premium income contracted significantly in the second quarter. Across all four business groups it declined by 19.8% for the first half-year 2004 to 4.8 billion euro (6.0 billion euro). At constant euro exchange rates, especially against the US dollar, the reduction would have been 15.0%. The level of retained premiums again increased appreciably, as a consequence of which net premiums fell by a mere 4.9% to 3.5 billion euro (3.6 billion euro). Adjusted for exchange-rate effects, net premiums would have been roughly on a par with the previous year.
In property and casualty reinsurance the second quarter of 2004 again offered Hannover Re attractive opportunities to write profitable business. The treaty renewal season in Japan and Korea as at 1 April 2004, for example, was used to expand business -- in some areas at substantially improved conditions. In accordance with its strategy Hannover Re further optimised its portfolio. "We continued to replace high-volume, but weaker-margin proportional business with profitable non-proportional business," Mr. Zeller emphasised. The "More from less" initiative, under which Hannover Re is focusing even more strongly on profitable market segments, combined with the restructuring of business with its HDI affiliates and the effects of exchange-rate movements caused gross premium income to contract by 20.5% compared to the first half of 2003 to 2.1 billion euro (2.7 billion euro). Adjusted for exchange-rate effects, the decline would have been 17.2%. Thanks to the company's heavily strengthened financial resources, significantly less business is ceded on the retrocession market; net premiums fell by a mere 9.6% to 1.5 billion euro (1.6 billion euro) on account of the higher level of retained premiums.
The claims experience in the second quarter was very modest; as in the first quarter, no natural catastrophe losses were recorded. The only major claim was the collapse of a structure at Paris Charles de Gaulle Airport. Hannover Re anticipates net expenditure of around 15 million euro in this regard. The net burden of major losses for the entire first half-year amounts to 51.9 million euro. This corresponds to roughly 3.5% of net premiums, a figure well below the multi-year average of five percentage points. The good quality of the business written and the favourable market conditions brought about a further improvement in the combined ratio, which stood at 94.3% for the first six months of 2004; compared to both the same period of the previous year (98.6%) and the full 2003 financial year (96.0%), this figure bears out the excellent quality of the business written. In the first half of 2004, as in the past, there was no need to constitute additional reserves for previous years. This is especially true of US liability business written in the years 1997 to 2001.
Property and casualty reinsurance grew its operating profit (EBIT) for the first six months by 25.1% year-on-year to 228.4 million euro (182.6 million euro). Net income was boosted by 14.4% to 115.9 million euro (101.3 million euro). The earnings of 96 cents (1.03 euro) a share were slightly lower.
Results in life and health reinsurance developed very favourably in the first half-year 2004. As in the first quarter, however, premium income declined relative to the same period of the previous year, falling by 13.8% to 939.4 million euro (1.1 billion euro). The principal reasons here were still the discontinuation of a major account in the United Kingdom, which in the previous year had produced premium volume in excess of 200 million euro, as well as the weakness of the US dollar. At constant exchange rates the decrease would have been 10.5%. Relative to the first half of 2003 the retention climbed sharply to 91.8% (79.1%), as a consequence of which net premiums fell only marginally by 0.9% to 857.9 million euro (865.9 million euro) -- and indeed they actually increased in the original currency. "Although experience shows that premium volume tends to grow more strongly in the second half of the year than in the first six months, here too we attach greater importance to results than premiums," Mr. Zeller noted. The operating profit (EBIT) grew very substantially compared to the first half of 2003, surging by 64.8% to 39.2 million euro (23.8 million euro). Net income was almost doubled to 23.7 million euro (12.0 million euro), or 20 cents (12 cents) a share.
In the second quarter financial reinsurance built on the pleasing development of the first quarter. Here too, as anticipated, gross premium income -- which had surged vigorously in recent years -- contracted by 26.9% compared to the first half-year 2003 to 674.8 million euro (923.3 million euro). At constant exchange rates the decline would have been 21.3%. Retention was slightly lower at 95.3% (96.4%). Net premiums earned fell by 14.4 % to 552.0 million euro (644.7 million euro). The operating profit (EBIT) rose by a sizeable 73.1% to 65.3 million euro (37.8 million euro); of this amount, 12.6 million euro was attributable to the initial consolidation of Hannover Re (Dublin) Ltd., formerly HDI Re (Ireland) Ltd., which was acquired as at 1 July 2003. Growth in net income was even more impressive, with a surge of 84.2% to 45.9 million euro (24.9 million euro). Hannover Re (Dublin) Ltd. contributed an amount of 11.3 million euro. Financial reinsurance generated earnings of 38 cents (25 cents) a share.
In program business the focus continues to be on enhancing the quality of the business written. Since more than 90% of the portfolio stems from the USA, the weakness of the US dollar is particularly evident here. Gross written premium as at 30 June 2004 thus contracted by 18.3% to 1.1 billion euro (1.3 billion euro). At constant exchange rates the decline would have been 9.9%. As planned, the retention continued to increase relative to the same period of the previous year, reaching 49.1% (44.7%). Net premiums correspondingly rose by a substantial 17.2% to 559.8 million euro (477.7 million euro). The combined ratio deteriorated slightly compared to the first six months of 2003 to 96.6% (94.0%). The higher level of retained premiums resulted in reduced income from reinsurance commissions and caused the combined ratio to rise; this was, however, offset by higher liquid funds and hence increased investment earnings. Correspondingly higher investment income boosted the operating profit (EBIT) by 3.2% to 42.5 million euro (41.2 million euro). Net income grew by 7.7% to 25.9 million euro (24.1 million euro), or 21 cents (25 cents) a share.
Hannover Re is highly satisfied with the development of its net investment income. Write-downs of a mere 19.9 million euro had to be taken on securities in the first half of 2004; of this amount, 12.3 million was attributable to equities. In the same period of the previous year write-downs on securities had still been in the order of 80 million euro. Profits of altogether 102.1 million euro (87.5 million euro) were realised on the disposal of investments in the first half-year. This contrasted with realised losses of 18.9 million euro, following 16.8 million euro in the previous year. The bulk of the realised profits derived from the sale of fixed-income securities as part of the move to shorten durations at the end of the first quarter. Exchange losses were, however, also realised in connection with these disposals, the amount of which exceeded the aforementioned gains. Ordinary income increased slightly relative to the same period of the previous year to 533.1 million euro (526.1 million euro), a reflection of the continuing highly positive underwriting cash flow. Despite the generally lower interest rate level, income from self-managed investments was boosted. Interest on reinsurance deposits was only slightly lower than in the previous year. Net investment income consequently rose by an appreciable 16.6% on balance to 567.0 million euro (486.2 million euro).
Outlook
Hannover Re is highly satisfied with the course of the financial year to date. Early insights from the renewal negotiations as at 1 July in the USA and the London Market as well as in Australia and New Zealand -- in other markets this is not a major renewal date -- indicate that the quality of the markets in property and casualty reinsurance is still high. Only in specific segments can some price erosion be detected. "We are superbly positioned with our excellent rating and are thus able to fully exploit the market opportunities," Mr. Zeller emphasised. Due to the strategic reorganisation of business with the HDI companies, the repercussions of the "More from less" initiative, Hannover Re's proactive cycle management as well as the sustained weakness of the US dollar, gross premium growth for the full year is still expected to be heavily curtailed, although net premiums -- at least adjusted for exchange-rate effects -- are likely to remain unchanged. Provided the major loss experience remains within the multi-year average, the profit contribution in property and casualty reinsurance should be even higher than in the previous year.
After the significant premium increases in recent years a largely stable premium volume -- adjusted for exchange-rate effects -- is anticipated in life and health reinsurance; the profit contribution is likely to rise by a double-digit margin.
In financial reinsurance Hannover Re continues to expect a declining premium trend year-on-year, although the profit contribution should again be significant.
Profitability in program business is expected to improve on the previous year. The gross premium volume -- adjusted for exchange-rate effects -- is likely to be roughly on a par with the previous year or slightly higher. It should be possible to generate an improved profit contribution.
For 2004 Hannover Re expects -- subject to normal movements on capital markets -- net investment income at least on a par with the previous year. The continuing very good underwriting cash flow should produce an enlarged asset portfolio and - despite lower yields - favourably impact investment income.
Overall, Hannover Re anticipates a highly successful 2004 financial year. "In view of the developments described above and provided major loss expenditure remains in line with the multi-year average and there are no adverse movements on capital markets, we stand by our forecast of consolidated net income for the full financial year of between 390 and 430 million euro," Mr. Zeller affirmed.
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 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").