HANNOVER, Germany, May 12, 2005 (PRIMEZONE) -- Hannover Re:
-- Gross premium growth + 6.2% -- Operating profit (EBIT) + 16.2% -- Quarterly net income + 11.1% -- All four business groups with positive results -- Combined ratio in property and casualty reinsurance 97.1%
In its report on the first quarter of 2005 published today Hannover Re expressed considerable satisfaction with its start in the new financial year.
Hannover Re made the most of the sustained highly advantageous market conditions in property and casualty reinsurance and continued to profitably expand its business. Despite an unusually high burden of catastrophe losses in the first quarter, an excellent combined ratio of 97.1% was achieved in property and casualty reinsurance. The operating profit (EBIT) for total business climbed by 16.2% in the first quarter relative to the same period of the previous year to reach 179.5 million euro. Quarterly net income grew by 11.1% to 107.7 million euro, equivalent to earnings of 89 cents (80 cents) a share. "With this result we have taken the first major step towards achieving our defined profit target for 2005", Wilhelm Zeller, Chairman of the Executive Board, emphasised.
Hannover Re's capital base also continued to improve: stockholders' equity increased by 4.0% compared to the position as at 31.12.2004 to reach 2.7 billion euro.
The Group's gross written premium expanded by 6.2% for the first time after sharp decreases in 2003 and 2004. Gross premiums for the first quarter of 2005 totalled 2.6 billion euro (2.5 billion euro). At constant euro exchange rates, especially against the US dollar, growth would have been even as much as 10.1%. The level of retained premiums climbed by another 4.8 percentage points to 84.3%, and net premiums rose even more strongly by 11.2% to 1.8 billion euro (1.6 billion euro).
The renewals in property and casualty reinsurance as at 1 January
-- when around two-thirds of our treaties are renegotiated
-- and 1 April 2005 clearly showed that the advantageous market conditions are holding firm. In most segments stable rates were obtained at unchanged conditions. In some lines -- e.g. in casualty business -- it was even possible to secure modest improvements.
"In view of the sustained favourable state of the market we were able to profitably enlarge our business volume. In so doing, we benefited especially from the weakness of some competitors and:
-- particularly on the German market as well as in worldwide credit/surety business
-- were able to substantially expand our market shares", Mr. Zeller stressed. Due to the prudent approach adopted in the past, there was again no need on balance to make additional contributions to the loss and loss adjustment expense reserves constituted for previous occurrence years.
Gross premium income in property and casualty reinsurance climbed by 11.8% to 1.3 billion euro (1.2 billion euro). At constant exchange rates, especially against the US dollar, growth would have been as strong as 14.9%. The level of retained premiums was 6.5 percentage points higher, and net premiums consequently surged by 26.9% to 849.9 million euro (669.9 million euro).
On the claims side 2005 got off to a turbulent start. The winter storm "Erwin" as well as two fire claims and a credit loss produced a net burden for Hannover Re's account of 93.3 million euro as against 28.3 million euro in the comparable quarter of the previous year. This corresponds to 11.0% (4.2 %) of net premiums, a figure well in excess of the multi-year average of 5%. Yet, the significance of this development in just a single quarter should not be overestimated. The high quality of the portfolio is borne out by the fact that the combined ratio still reached a very good 97.1% (95.4%).
The underwriting result contracted from 30.5 million euro to 24.6 million euro. The operating profit (EBIT) in property and casualty reinsurance surpassed the very good result of the first quarter of the previous year, rising by a further 43.4% to 108.2 million euro (75.4 million euro). Net income for the quarter grew by as much as 56.8% to 62.6 million euro (39.9 million euro), or 52 cents (33 cents) a share.
Life and health reinsurance similarly delivered -- according to plan -- a very positive development for the first quarter of 2005: gross premiums in this business group climbed sharply by 21.3% to 538.7 million euro (444.0 million euro). This growth was attributable to strong new business and the effect of additional premiums from the previous year, especially under unit-linked life and annuity insurance in Germany and the traditional products of term life and critical illness in the United Kingdom. At constant exchange rates growth would even have reached 25.2%. The level of retained premiums rose from 90.4% to 94.5%, causing net premiums earned to surge by 26.5% to 505.8 million euro (399.9 million euro).
"Although in life and health reinsurance the third and fourth quarters are traditionally the strongest -- in terms of both premium income and profitability -- the results as at 31 March were already highly gratifying", Mr. Zeller noted. Hannover Re, which in this business group operates worldwide under the brand Hannover Life Re, generated an operating profit (EBIT) of 27.2 million euro (24.1 million euro) -- an increase of 12.8%. Quarterly net income improved to 16.7 million euro (16.4 million euro), and life and health reinsurance thus delivered earnings of 14 cents (14 cents) a share to the Group's overall performance.
During the reporting period financial reinsurance continued to suffer under the largely adverse publicity associated with investigative probes launched by a number of US agencies. Hannover Re, too, has now been approached by authorities in the United States for information. As already stated in the past, the company will cooperate on a voluntary basis although it is under no obligation in this respect. "We have reiterated on numerous occasions that our strict underwriting guidelines fully comply with the regulatory standards and requirements of commercial law applicable to financial reinsurance contracts and are designed to prevent abuse", Mr. Zeller explained. The current debate surrounding financial reinsurance arrangements has regrettably instilled some degree of uncertainty in the minds of US clients. This business group nevertheless developed according to plan. The gross premium income of 352.6 million euro was almost on a par with the previous year (353.7 million euro). At constant exchange rates an increase of 4.2% would actually have been generated. The level of retained premiums fell sharply due to the retrocession of specific transactions, and net premiums earned declined by 21.2% to 196.3 million euro (249.0 million euro).
The operating profit (EBIT) contracted by 14.1% to 28.0 million euro (32.6 million euro). Net income after tax as at 31 March decreased by 31.9% to 17.7 million euro (26.0 million euro) owing to higher tax expenditure. Financial reinsurance delivered earnings of 15 cents (21 cents) a share.
In program business Hannover Re is well on track for a return to normality. The new management team at Clarendon Insurance Group is in the process of focusing the portfolio even more closely on profitable niche segments. "A major breakthrough could not yet be expected in the first quarter. Nevertheless, the improved combined ratio of 96.2% heralds the anticipated return to profitability", Mr. Zeller affirmed. Gross written premium contracted by 16.3% to 407.5 million euro (487.0 million euro). The relative weakness of the US dollar was particularly pronounced in program business, with its heavy North American bias. At constant exchange rates gross premiums would have been just 11.2% lower. Net premiums fell by 19.4% to 227.7 million euro (282.4 million euro). The operating profit (EBIT) as at 31 March 2005 closed back in positive territory at 16.1 million euro (22.3 million euro) -- following a deficit in the 2004 financial year. Net income for the quarter amounted to 10.6 million euro after 14.6 million euro in the previous year, equivalent to earnings of 9 cents (12 cents) a share.
Hannover Re was broadly satisfied with the performance of its investments. Although the volume of assets grew by 4.4% compared to the first quarter of the previous year to reach 16.5 billion euro, ordinary income as at 31 March declined slightly to 239.8 million euro (257.2 million euro) owing to the persistently low level of interest rates. Whereas in the previous year substantial price gains had derived from the shortening of durations in the bond portfolio, no such effect was recorded in the reporting period. In the previous year, however, this effect had been more than offset by realised exchange losses on these fixed-income securities recognised under other income and expenses. Profits of 20.9 million euro (77.2 million euro) were realised on the disposal of investments, contrasting with realised losses of 6.7 million euro (6.5 million euro). Write-downs on securities were no longer a factor at just 0.4 million euro; the figure had been as high as 14.2 million euro in the corresponding quarter of the previous year. Net investment income contracted on balance from 298.5 million euro to 247.2 million euro.
Outlook
"We expect a favourable business development over the course of the 2005 reporting year", Mr. Zeller reiterated. Rates and conditions remain good in property and casualty reinsurance, and Hannover Re is therefore looking to sustained premium growth. Provided major losses remain within the bounds of the multi-year average as the year progresses, the result generated by property and casualty reinsurance should again surpass the previous year.
In life and health reinsurance further double-digit premium growth in the original currency is expected, especially from Germany, the United Kingdom and Asian markets. All in all, Hannover Life Re anticipates significantly higher profitability.
In financial reinsurance Hannover Re continues to expect a double-digit percentage drop in premium volume. Net income for the year is nevertheless likely to be most attractive.
Premium income in program business will be lower than in the previous year. Clarendon's restructuring efforts should be rewarded with a positive result that will build on 2003 (42.2 million euro) and thus at least cover the cost of capital.
For 2005 Hannover Re anticipates another very positive underwriting cash flow and hence further growth in the asset portfolio. Given modestly rising interest rates, investment income should therefore also come in somewhat higher.
"In view of the development of our business groups discussed above, I am confident that we can significantly boost our profitability in the year under review", Mr. Zeller emphasised. Assuming that major loss expenditure remains in line with the multi-year average and provided there are no adverse movements on capital markets, Hannover Re anticipates net income in the order of 430 - 470 million euro, or roughly 3.60 - 3.90 euro a share.
Hannover Re, with gross premiums 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 program business. 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").