HANNOVER, Germany, Nov. 20, 2002 (PRIMEZONE) -- In its interim report presented today, Hannover Re (Other OTC:HVRRF) expresses considerable satisfaction with its business development for the first nine months in view of an extremely difficult environment. With its third-quarter performance the company built on the favourable development of the preceding quarters.
As announced by Hannover Re in a press release, EBIT totalled EUR 352.2 million as at September 30, 2002. This represents an increase of EUR 435.0 million compared to the same period in the previous year. Net income amounted to EUR 207.8 million (previous year: -EUR 84.7 million), corresponding to earnings per share of EUR 2.14 (-EUR 0.96). When making comparisons with the previous year, it should, however, be borne in mind that the terrorist attacks of September 11, 2001 heavily distorted the figures for the third quarter and first nine months of the previous year.
Premium income again increased substantially, although growth rates in this quarter were not as vigorous as in the three previous quarters. Gross written premiums across all four business groups totalled EUR 9.1 billion (EUR 7.3 billion) as at September 30. This corresponds to an increase of 24.3% compared to the same period in the previous year. Had it not been for the strengthening of the euro, especially against the U.S. dollar, the rise would have been as much as 28.7%. Net premiums earned amounted to EUR 5.3 billion (EUR 4.3 billion, +24.3%).
The development of property and casualty reinsurance continued to be particularly gratifying. It remains Hannover Re's largest and currently most profitable business group. As Wilhelm Zeller, Chairman of the Executive Board, emphasised: "The treaty renewals in the third quarter -- especially in the USA -- showed that the market for reinsurers is currently exceptionally favourable". Gross written premiums consequently rose by 74.3% as at September 30 to EUR 4.8 billion (EUR 2.7 billion). Net premiums earned increased by 48.0% to EUR 2.9 billion (EUR 1.9 billion). The profitability of the business is borne out by the underwriting result, which climbed to EUR 139.5 million (-EUR 472.6 million). Even leaving aside the losses associated with the events of September 11, 2001, the increase still amounts to EUR 212 million. This underlines how the quality of the business has been enhanced within the past 12 months.
On the claims side Hannover Re was primarily affected by the flood catastrophe in central and eastern Europe in the third quarter. The total burden of major claims stood at EUR 46.5 million. This corresponds to 4.5% of net premiums. Major losses over the first nine months accounted for 5.2% of net premiums, which is within the multi-year average. The fact that a combined ratio of 95.1% (124.4%) was still recorded demonstrates the quality of the business that has been achieved meantime.
EBIT across all three quarters grew -- despite significantly reduced net investment income -- to EUR 237.9 million (-EUR 200.1 million). Net income totalled EUR 134.5 million following a deficit of EUR 155.5 million in the previous year. Earnings per share of EUR 1.38 (-EUR 1.76 ) were therefore generated.
Life and health reinsurance business again developed rather modestly in the third quarter. Gross premium income as at September 30 totaled EUR 1,614 million (EUR 1,635 million), a figure slightly below that of the previous year. Net premiums grew by 10.3% to EUR 1.4 billion due to a sharply higher retention. EBIT amounted to EUR 26.1 million (EUR 39.2 million), with a gratifying underwriting experience opposed by not inconsiderable write-offs on investments, especially at foreign subsidiaries. On balance EBIT therefore declined by 33.4%. Net income stood at EUR 17.9 million (EUR 21.5 million), a drop of 17.2%. This corresponds to earnings per share for life and health reinsurance of EUR 0.18 (EUR 0.24) as at September 30. The performance of the first three quarters in life and health reinsurance does not, however, provide a reliable indication of the premium growth and result as at year-end. This is due to the fact that premiums for life reinsurance treaties with financing components, the area in which Hannover Re's activities are concentrated, tend to accrue increasingly towards the end of each year. Experience shows, therefore, that the development of premiums and results is significantly more favourable in the fourth quarter than in the first nine months.
Program business continues on its successful track. Clarendon Insurance Group, New York, substantially boosted its business volume - particularly the level of retained premiums - and its result. Gross written premiums rose by 10.3% to EUR 2.0 billion. Net premiums earned grew by as much as 63.3% to EUR 578.9 million. The underwriting result was almost doubled to EUR 41.4 million following EUR 21.2 million in the same period of the previous year. The combined ratio of 92.9% (94.0%) was remarkably low. As Mr. Zeller stressed: "These improvements clearly show that the reorganisation which we initiated at Clarendon enabled us to substantially enhance the quality of the business". EBIT surged by 59,9% to EUR 48.3 million (EUR 30.2 million). The net income generated from program business stood at EUR 25.5 million, an increase of 74.7% compared to the previous year's figure of EUR 14.6 million. Program business consequently contributed earnings per share of EUR 0.26 (EUR 0.17).
Financial reinsurance developed modestly but nevertheless according to plan in the third quarter and hence through the first nine months of the year. As in life and health reinsurance, the trend to date in premiums and results does not provide a pointer to the development for the year as a whole. Experience shows that financial reinsurance treaties tend to be concluded towards year-end. The decline in premium volume - both gross and net - was attributable to extraordinary premium effects in the previous two years that were not repeated in the reporting period. Gross written premiums consequently fell by 36.4% to EUR 732.6 million (EUR 1.2 billion). The decline in net premiums earned, which sank by 31.8 % to EUR 516.5 million, was somewhat smaller owing to a higher level of retained premiums. EBIT contracted by 16.9% to EUR 39.9 million. Net income generated on this basis totaled EUR 30.0 million (EUR 34.8 million), a decline of 13.8%. Earnings per share amounted to EUR 0.31 (EUR 0.39).
Net investment income deteriorated as anticipated due to the difficult state of the capital markets. Hannover Re was, however, able to avoid more substantial losses thanks to its low equity ratio of just 7% and the high quality of its portfolio of fixed-income securities. Write-offs on investments amounted to EUR 58.4 million in the third quarter and totaled EUR 120.0 million for the first nine months of the year. Ordinary investment income grew favourably due to the increased asset volume and reached EUR 727.8 million on a cumulative basis.
Net investment income of EUR 194.0 million was generated in the third quarter; for the first nine months it totaled EUR 574.1 million, EUR 137.3 million less than in the same period of the previous year.
Outlook
It is evident from the report on the third quarter and the first nine months of the year that Hannover Re -- as is borne out by the adverse news from the majority of its competitors -- achieved a highly favourable performance in an extremely difficult environment.
The property and casualty reinsurance markets remain extremely profitable. In 2002 this business group - subject to the absence of extraordinary major losses - should close with a combined ratio well under 100%. Preliminary negotiations for the 2002/03 renewal season in property and casualty reinsurance clearly indicate that Hannover Re has excellent opportunities to generate further profitable growth, since the demand for high-quality reinsurance protection substantially exceeds supply. As Mr. Zeller underlined: "It is our assumption that this advantageous market situation will continue until at least 2004."
The volume of business in life and health reinsurance should again grow appreciably towards the end of the year. Given a continued favourable underwriting experience, Hannover Re anticipates a positive profit contribution from this segment in line with expectations.
Program business will continue to progress satisfactorily. The company's selective underwriting policy, combined with higher levels of retained premiums, has already proven its worth. It is to be expected that Clarendon can further enlarge its market share while safeguarding adequate profitability. The systematic expansion of program business to other countries outside the USA will continue.
In financial reinsurance a surge in business is anticipated towards the end of the year. The individually tailored solutions offered by Hannover Re in this segment will remain attractive for many companies.
Developments on the capital markets are difficult to forecast. As Mr. Zeller emphasised: "With the defensive structure of our equity and bond portfolios we were well positioned in the insecure market environment of recent quarters." Following the low point in October an upward trend is to be expected on equity markets, and the year should therefore close with a modest recovery. As a basic principle Hannover Re is currently maintaining its defensive investment strategy.
"In view of the trend in the first nine months and the expectations described above, we stand by our after-tax profit forecast for the 2002 financial year," affirmed Mr. Zeller. This is conditional, firstly, on an average major loss incidence in the final weeks of the year. It further depends on a moderate recovery in the capital markets; last but not least, the attainment of the profit target is contingent on the accustomed favourable fourth-quarter development of life/health and financial reinsurance as recorded in recent years. Primarily due to the strains deriving from the capital markets, Hannover Re expects EBIT to be lower than originally planned. However, thanks to the outstanding development to date of natural catastrophe reinsurance, which is written by the subsidiary established last year in Bermuda, the tax load will also be lower than anticipated. Hannover Re therefore remains confident of generating net income of around EUR 300 million and earnings per share of EUR 3.
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Hannover Re, with gross premiums of approx. EUR 12 bn., 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 American rating agencies Standard & Poor's and A.M. Best have awarded Hannover Re a rating of AA ("Very Strong") and A+ ("Superior"), respectively