HANNOVER, Germany, June 20, 2003 (PRIMEZONE) -- Hannover Re (Other OTC:HVRRF):
Wilhelm Zeller, the Chairman of our Executive Board, gave a speech on the occasion of the Goldman Sachs European Financials Conference 2003 in Rome on 18 June which obviously has been widely misinterpreted. Please find enclosed a summary of what Mr. Zeller actually said.
In addition, we would like to comment on yesterday's Standard & Poor's rating action on our London subsidiary, International Insurance Co. of Hannover Ltd. (Inter Hannover), lowering of the long-term counterparty credit and insurer financial strength ratings to 'A+' from 'AA-'. The downgrade reflects the changed position of Inter Hannover within the Hannover Re Group. Inter Hannover today is the Group's dedicated program writer in Europe; thus Inter Hannover obtained by Standard & Poor's the same rating as Clarendon, our US program business writing unit.
The rating of the Hannover Re Group remains unchanged. A.M. Best ('AA+ under review') as well as Standard & Poor's ('AA- negative outlook') continue to award us their second-highest ratings. Standard & Poor's stated in its press release that Hannover Re's management commitment to strengthen the balance sheet has been demonstrated through last week's capital raising.
Contact: Roland Vogel (Tel.: +49/ 511/ 56 04-12 00, Fax: +49/ 511/56 04-68 92, E-Mail: roland.vogel@hannover-re.com).
Hannover Re, with gross premiums of EUR 12.5 billion, 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").
Attachment to Hannover Re's NewsLetter of 20 June 2003
On the occasion of this year's Goldman Sachs European Financials Conference in Rome on 18 June, Mr. Zeller spoke about global market trends in the reinsurance industry, including an outlook on pricing trends for 2004.
Mr. Zeller first emphasized that there will be no uniform situation, but that the world reinsurance market has to be broken down at least by geographic regions (U.S., Europe, rest of the world); general property/casualty business versus specialty lines (aviation, marine, credit and bond); property catastrophe business.
With regard to these aspects Mr. Zeller elaborated on the following:
Pricing trends in the US reinsurance market
In property/catastrophe we are currently experiencing one of the highest rate levels in history. Fuelled primarily by new capacity we anticipate that this very high rate level will decrease by 5% to 10%, however, it will continue to be very attractive for reinsurers.
In property per-risk, post 9/11 we are enjoying by far the highest rate level this segment has ever seen (most treaties contain payback loadings from 9/11 losses). The future rate development is expected at least to be stable or might even see additional rate increases in the short term by another 10%.
In property pro-rata we expect stable terms at the reinsurance level. Casualty
Directors' and officers' liability: Rates are expected to increase by another 10% to 15%.
Umbrella: Rate increases by another 15%.
Clash covers: Rate increases might be levelling off.
Medical malpractice: Market will continue to see solid, double-digit rate increases.
Workers' compensation catastrophe covers: After rate increases by several hundred percent during the last two years rates might come off by up to 20%. However, this will continue to present a very attractive rate level.
Casualty working covers: We expect to see stable rates to small increases.
Conclusion: 2004 should produce an improved combined ratio for the whole market with casualty being the most attractive segment.
Pricing trends in European reinsurance markets
At the personal lines primary level we expect most lines to stay stable.
In commercial/industrial lines rates are expected to reach their peak.
Reinsurers are expected to see more rate increases.
Conclusion: Combined ratios to further improve.
Pricing trends in emerging reinsurance markets
Property/casualty primary insurance rates are still moving up.
Not least as a result of increased competition from Bermuda start-ups, most reinsurance programmes are oversubscribed (i.e. plenty of capacity).
Conclusion: Combined ratios are expected to stay stable.
Pricing trends in specialty lines reinsurance
Aviation: Post 9/11 rates in the airline business skyrocketed (Hannover Re's gross written premium in underwriting year 2001 increased by 382%). From this extremely high level rates have come down on average by some 10% during the 2002 renewal and continue to further come down this year. Most programs, however, are still on a (very) attractive basis.
In the London excess-of-loss reinsurance market a similar but not quite as strong development took place post 9/11. These rates are still holding stable.
Marine:
Most excess of loss markets show signs of softening -- again from a very high level so that the rate environment is still attractive.
Credit and bond:
Very difficult line of business (reinsured for the most part still on a pro-rata basis).
Our latest capital allocation model suggests to exit some pro-rata business.
Excess of loss rates are very attractive.
Conclusion: Combined ratios in the specialty lines reinsurance business are likely to deteriorate by 5% to 10% in 2004.
Pricing trends in property catastrophe reinsurance
We are enjoying one of the highest rate levels in the history of this segment.
Markets for which rating models exist (all industrialized countries) will stay more stable.
In emerging markets the business is likely to stay soft.
The RMS 4.3 release suggests a doubled earthquake PML for California.
This will lead to increased demand which will meet an unchanged capacity supply (i.e. rate increases).
Conclusion: Prices on a worldwide basis are expected to come off by some 5% (possibly more -- 15% not impossible).
As a result combined ratios are expected to increase by 5%.
The overall conclusion from these considerations is that the hard market is by far not over. On balance, we have reached the peak in some segments with most markets continuing to be (very) attractive. A portfolio with an unchanged business mix might generate a 2004 combined ratio of 1 to 2 points less good than the excellent 2003. Opportunistic and flexible reinsurers like Hannover Re will write more profitable (US) casualty business while decreasing its exposure in softening lines and segments, which should uphold the favorable 2003 combined ratio.