HANNOVER, August 26, 2003 (PRIMEZONE) -- Hannover Ruckversicherungs-AG (Other OTC:HVRRF):
* Half year net income boosted by 11.0% * Profit forecast for the full year confirmed
In its interim report published today Hannover Re expressed considerable satisfaction with the development of business in the first half of 2003. The result was significantly higher than in the previous year; the company continued to profit from the advantageous conditions on reinsurance markets. Net investment income also improved since no further appreciable write-offs were required in the second quarter. An operating profit (EBIT) of 285.2 million euro (previous year: 284.3 million euro) was achieved in the first half-year. Interim net income climbed by 11.0% to 162.4 million euro (146.3 million euro), or 1.65 euro (1.51 euro) a share. All four business groups generated positive profit contributions. As Wilhelm Zeller, Chairman of the Executive Board, emphasised: "With this performance we are right on course to achieve net income for the year in excess of 320 million euro".
Gross written premiums for the first six months of the current financial year declined by 2.9% to 6.0 billion euro (6.2 billion euro). The decrease was due primarily to movements in exchange rates. Had it not been for the appreciation of the euro, especially against the US dollar, growth of 10.1% would have been recorded. Net premiums earned, on the other hand, climbed by 9.4% to 3.6 billion euro (3.3 billion euro) owing to the substantially lower level of business retroceded.
The outcome of the treaty renewals in property and casualty reinsurance as at 1 January and 1 April 2003, when more than two-thirds of the treaties were renewed, was highly satisfactory. The favourable effects of the improvements in rates and conditions, which were achieved in almost areas of this business group, produced an outstanding interim result despite reduced gross premium income. Mr. Zeller explained: "This is a success for our 'More from less' initiative, under which we are seeking to focus even more heavily on profitable business". The decrease of 20.2% in gross written premiums to 2.7 billion euro (3.3 billion euro) in the first half-year was due to two factors, both of which had already made themselves felt in the first quarter: firstly, currency effects accounted for 7.5 percentage points; secondly, the reduction reflected the strategic course embarked upon with the "More from less" initiative, which came into effect at the beginning of the year. As part of this policy Hannover Re will no longer assume the entire reinsurance volume of the HDI companies, but merely the portion that it intends to run in its retention. As an additional factor, the US subsidiary Insurance Corporation of Hannover discontinued its property and casualty reinsurance business.
The claims situation remained highly satisfactory for Hannover Re in the first half-year. Just three catastrophe losses were recorded in the second quarter, producing total net expenditure of 14.5 million euro; the first quarter had been entirely spared catastrophe claims. The combined ratio improved to 98.6% for the half-year (95.6%) after 100.3 % for the first quarter.
The operating profit (EBIT) as at 30 June 2003 benefited, amongst other things, from the gratifying investment income of the second quarter. In the first quarter heavy write-offs had again been necessary, especially on equities; in the second quarter these were almost entirely absent. The operating profit (EBIT) for the first half-year totalled 182.6 million euro, a mere 7.0% lower than the figure for the exceptionally strong corresponding period in the previous year. Net income for the half-year grew by a pleasing 11.7% from 90.7 million euro to 101.3 million euro, assisted by reduced tax expenditure compared to the previous year. The property and casualty business group thus generated earnings of 1.03 euro (93 cents) a share.
The gross written premiums of 1.1 billion euro in life and health reinsurance as at 30 June 2003 were merely on a par with the previous year. This business group too was, however, hard hit by adverse currency effects. Had it not been for this influencing factor gross premiums would have been 11.8% higher. Net premiums earned were boosted by 8.6% to 865.9 million euro (797.3 million euro) following the realignment of retrocession structures. The operating profit (EBIT) of 23.8 million euro surpassed the previous year's figure (22.5 million euro) by 5.6%. Interim net income contracted from 15.3 million euro to 12.0 million euro, or 12 cents (16 cents) a share.
Building on a very good first quarter, financial reinsurance continued to develop highly favourably in the current quarter. Demand for individually tailored solutions remains very vigorous, and gross written premiums grew by 82.9% as at 30 June 2003 to 923.3 million euro (504.7 million euro). Had it not been for negative currency effects the rise in gross premiums would have been as much as 109.5%. Net premiums earned climbed by 111.5% in the first half-year to 644.7 million euro (304.9 million euro). The operating profit (EBIT) was boosted to a gratifying 37.8 million euro (28.9 million euro). Net income for the first half-year climbed by 18.6% to 24.9 million euro (21.0 million euro), or 25 cents (22 cents) a share.
Program business also continued its successful development. Gross premiums increased by 7.2% to 1.3 billion euro (1.2 billion euro). Had it not been for negative exchange rate factors growth would have been as high as 29.8%. The level of retained premiums rose again to 44.7% (35.9%). Net premiums consequently showed a disproportionately strong increase of 20.7% to reach 477.7 million euro (395.9 million euro). A slightly higher combined ratio of 94.0% (90.8%) caused the underwriting result to contract by 21.2%. This effect was, however, more than offset by increased investment income, and the operating profit (EBIT) thus improved by 12.0% to 41.2 million euro (36.8 million euro). Net income for the half-year was boosted by a pleasing 24.9% to 24.1 million euro (19.3 million euro), or 25 cents (20 cents) a share.
The more favourable capital market conditions in the second quarter enabled Hannover Re to generate gratifying net investment income for the first half-year. Write-offs on securities amounted to a very modest 5.0 million euro in the second quarter, almost entirely on equities; this figure had still been as high as 75.3 million euro in the first quarter, with 46.0 million euro attributable to equities. Losses on the disposal of investments were also substantially lower in the reporting period than in the first half of 2002, amounting to 16.8 million euro (67.8 million euro). What is more, profits of 87.5 million euro (73.3 million euro) were realised on the sale of equities and fixed-income securities as at the end of the reporting period. Ordinary income was boosted by altogether 10.2 % to 526.1 million euro (477.3 million euro). This was an excellent performance given the sharp declines in returns on some securities. Total net investment income grew by 27.9% to 486.2 million euro (380.1 million euro).
Outlook
Hannover Re is highly satisfied with the course of the current financial year to date. The development of the market and the treaty renewal season in property and casualty reinsurance have demonstrated that the hard market is holding up. As Mr. Zeller commented: "In accordance with our 'More from less' initiative we are willing to accept that gross premium income will decline as a consequence of active cycle management and negative currency effects". Provided the development of catastrophe losses remains in line with the multi-year average, the combined ratio should not exceed 100% and the profit contribution of property and casualty reinsurance for the year as a whole is expected to rise again.
In life and health reinsurance demand for individually senior citizen products is expected to grow over the long term. For the year as whole Hannover Re anticipates premium growth comparable with the first six months, but a sharply higher profit contribution.
Demand for financial reinsurance products remains strong. As a highly respected provider with considerable experience Hannover Re will continue to benefit from this trend in the future. Double-digit growth in gross premium income is therefore expected, with a higher profit contribution than in the previous year.
In program business the initiated restructuring measures are bearing fruit. These steps, combined with further portfolio optimisation activities, are expected to generate gross premiums on a par with the previous year and slightly higher net income.
Net investment income is of course difficult to forecast. Hannover Re expects further growth in the volume of assets. However, the returns that can be generated - which declined sharply in the first half-year - are unlikely to recover appreciably. As Mr. Zeller explained: "Provided there are no significant price declines on the international stock markets, we do not anticipate any further need for systematic write-offs on our equity portfolio". For the current financial year, therefore, net investment income is forecast to be at least on a par with the previous year.
Overall, Hannover Re anticipates a very successful 2003 financial year. Gross premium income is likely to be comparable with the previous year, and may even contract slightly if the US dollar remains weak. Subject to a major loss experience in line with the multi-year average and provided there are no unforeseen adverse developments on capital markets, Mr. Zeller stands by his forecast of consolidated net income in the region of 320 million to 350 million euro.
In yesterday's meeting the Supervisory Board of Hannover Re has appointed the deputy members of the Executive Board Andre Arrago, Dr. Elke Konig and Ulrich Wallin as full members.
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 a rating in their second-highest category (Standard & Poor's AA- "Very Strong" and A.M. Best A+ "Superior").