HANNOVER, Germany, Nov. 26, 2003 (PRIMEZONE) -- Hannover Re:
-- Hannover Re posts highly gratifying interim result: EBIT +
41.5%
-- Property and casualty reinsurance + 27.8%
-- Life and health reinsurance + 87.6%
-- Financial reinsurance + 126.3%
-- Program business + 13.7%
-- Combined ratio: 97.2%
-- All business groups on target or better
-- Profit forecast for 2003 revised upwards
In its interim report published today Hannover Re expressed considerable satisfaction with the development of its business in the first nine months of 2003.
The third quarter of 2003 again built seamlessly on the very good results of the previous quarters. The operating profit (EBIT) for the first nine months was boosted by 41.5% to 498.2 million euro. EBIT after the first nine months has thus already surpassed the record result for the entire previous year (470.9 million euro). Although tax expenditure was sharply higher, net income for the reporting period increased by almost 50 million euro or 23.5% to 256.6 million euro, or 2.43 euro (2.14 euro) a share. All four business groups delivered positive profit contributions. As Wilhelm Zeller, Chairman of the Executive Board, emphasised: "Thanks to our consistent cycle management we have been able to optimally exploit the continuing very favourable situation on the reinsurance markets. With this outstanding result we will be able to achieve a revised net income forecast of approximately 350 million euro".
As was the case in the first half-year, gross premium income in the first nine months was marginally lower at 8.9 billion euro (9.1 billion euro). This decrease was primarily due to movements in exchange rates. At constant exchange rates, gross premiums would have risen by 8.7%. Net premiums earned, on the other hand, climbed by 10.8% to 5.9 billion euro (5.3 billion euro) as a consequence of increased retention of 71.0% (66.8%).
The market climate in property and casualty reinsurance remains exceptionally favourable. This is reflected in risk-adequate and profitable terms and conditions in almost all lines of business. In certain segments, including for example US casualty business, further price increases were obtained in the third quarter. Despite the decline in gross premiums in the first nine months, an excellent result was generated in this advantageous market situation. Of the 15.5% decrease in gross written premiums to 4.0 billion euro (4.8 billion euro) as at 30 September, roughly half was attributable to the relative appreciation of the euro, especially against the US dollar. At constant exchange rates the reduction in gross premium income would have been a mere 8.4%. On the underwriting side, too, -- as in the first half of 2003 -- two additional factors contributed to the reduction in premium volume: firstly, Hannover Re is no longer accepting the entire reinsurance volume of its HDI affiliates, but merely the portion that it retains. Secondly, the "More from less" initiative is gradually making itself felt. Under this programme Hannover Re is focusing even more closely on profitable market segments. Net premiums earned amounted to 2.6 billion euro (2.9 billion euro) for the first nine months, a decline of 8.0%.
Following on from a good first half-year the claims situation in the third quarter was again satisfactory. Although the market witnessed a number of major loss events with significant implications for the underwriting account, the burden incurred by Hannover Re remained relatively modest. Two natural catastrophes in the third quarter -- namely the hurricanes "Fabian" and "Isabel" -- produced a total loss amount of 47.3 million euro. This corresponds to 4.8% of net premiums in the third quarter. The proportion of catastrophe losses relative to net premiums earned during the first nine months stood at 2.6%, a figure well below the multi-year average of around 5%. The combined ratio for the first nine months amounted to 97.2% (95.1%). In accordance with its past practice, Hannover Re established conservative reserves for new business. The third quarter -- in common with previous quarters -- also did not give rise to any need to adjust claims reserves for earlier underwriting years.
Gratifying investment income in the third quarter helped boost the operating profit (EBIT) in property and casualty reinsurance as at 30 September by 27.8% to 304.0 million euro (237.9 million euro). Despite significantly higher tax expenditure, net income for the first nine months of the year under review was increased by 2.2% to 137.4 million euro (134.5 million euro) or 1.30 euro (1.38 euro) a share.
Life and health reinsurance developed as planned in the first nine months. Gross written premiums as at 30 September totalled 1.7 billion euro, an increase of 3.4% compared to the previous year's figure of 1.6 billion euro. At constant exchange rates gross premium income would have grown by as much as 15.0%. Net premiums earned climbed by 1.5% to 1.4 billion euro.
The improvement in the operating profit (EBIT) was especially gratifying, with an increase of 87.6% compared to the same period of the previous year to reach 48.9 million euro (26.1 million euro). The reorganisation of portfolios in US health business and the concentration on annuity products were particularly crucial to this improved performance. An additional favourable factor was the 4.8% increase in investment income compared to the previous year. Although net income for the reporting period grew less sharply due to higher tax expenditure as at 30 September, it was still boosted by a very healthy 23.9% to 22.1 million euro. The life and health reinsurance business group thus generated earnings of 21 cents (18 cents) a share.
Financial reinsurance developed very favourably in the third quarter following on from the consistently good performance of the previous quarters. The demand among clients for tailor-made solutions remained vigorous, with gross written premiums as at 30 September rising by 67.0% to 1.2 billion euro (732.6 million euro), a figure almost equivalent to the gross premium income of the entire previous year. In this business group, too, at constant exchange rates the growth after nine months would have been significantly higher -- as much as 88.8%. As an additional factor, the business of HDI Re Ireland, which was acquired as a contribution in kind as part of a capital increase on 12 June 2003, became part of the business group financial reinsurance with effect from 1 July 2003. Due to an increased retention of 98.1% (91.8%), the rise in net premiums earned of 111.0% to 1.1 billion euro ultimately far outstripped the growth in gross premiums.
The operating profit (EBIT) recorded an exceptionally sharp increase of 126.3% to reach 90.3 million euro (39.9 million euro). The portion attributable to HDI Re Ireland consolidated as at 1 July amounted to 10.9 million euro. Net income after tax grew by 90.3 % to 57.1 million euro (30.0 million euro), or 54 cents (31 cents) a share.
In the third quarter program business again built on the achievements of the previous quarters, thereby demonstrating that the restructuring of the New York subsidiary Clarendon Insurance Group has been a success. Although gross written premiums contracted marginally by 3.0% to 1.9 billion euro (2.0 billion euro), at constant exchange rates growth of 15.4% would have been reported. Due to an increase in the level of retained premiums to 46.4% (37.5%), net premiums earned climbed by 36.5% relative to the same period of the previous year to reach 790.0 million euro (578.9 million euro). The increase of 3.4 percentage points in the combined ratio to 96.3% (92.9%) was due chiefly to the higher retention and the associated lower commission income.
Improved investment income also helped to boost the operating profit (EBIT) as at 30 September by 13.7% to 54.9 million euro (48.3 million euro). The growth in net income generated from program business for the reporting period was even more impressive: the latter rose by 56.9% to 40.0 million euro (25.5 million euro). Program business thus contributed earnings of 38 cents (26 cents) a share to the Group profit.
In what was generally a bright market climate the asset portfolio developed favourably, generating very good investment income. Minimal write-downs of 8.8 million euro were necessary in the third quarter, following 5.0 million euro in the second quarter and 75.3 million euro in the first quarter. In the second quarter Hannover Re had already begun to slightly increase its equity allocation. In the third quarter the duration of the bond portfolio was increased again to 3.7 years. Free liquidity at the beginning of July was invested in Euro Stoxx 50 equities, pushing the equity allocation of listed stocks up to 6.2% as at 30 September.
In the third quarter high interest on reinsurance deposits and enlarged asset volumes again contributed to the favourable development of ordinary investment income, which climbed by 6.1% to 771.8 million euro (727.8 million euro) despite low returns. Net investment income as at 30 September improved by a gratifying 24.9% to 716.8 million euro (574.1 million euro). As Mr. Zeller affirmed: "We are highly satisfied with this result and are absolutely on course to achieve our targets for the financial year."
Outlook
In a generally positive market climate, Hannover Re has developed very favourably to date. "We have every reason to assume that this trend will be sustained in the fourth quarter," stated Mr. Zeller.
The development of property and casualty reinsurance demonstrates that the favourable market climate is holding up. The positive business trend is thus likely to remain uninterrupted in the fourth quarter, provided there are no extraordinary major losses. For the 2003 financial year a combined ratio under 100% is anticipated. This is particularly gratifying insofar as the increased proportion of casualty business inevitably pushes up the combined ratio. Hannover Re intends to make the most of the continuing rise in prices for US casualty business and enlarge its premium volume in this segment. Against the backdrop of adverse currency influences and strategic reorientation, gross premium income for the entire year will be well below the level of the previous year in this business group. The decrease in net premiums, however, will be less marked owing to the higher level of retained premiums. The profit contribution should comfortably surpass the level of the previous year.
In life and health reinsurance Hannover Re expects gross premium income to remain unchanged from the 2002 financial year owing to the sustained strength of its balance sheet currency. Despite this modest premium trend double-digit growth is nevertheless expected in both operating profit (EBIT) and net income.
The situation in financial reinsurance remains positive. Demand for financially-orientated protection continues to be strong, and clear double-digit growth in gross premiums as well as a sharply higher profit contribution are therefore anticipated.
The organisational changes implemented in program business -- particularly at Clarendon Insurance Group -- have proven their worth. The level of retained premiums will remain high and gross premium volume is likely to be comparable with the previous year. Net income for the year should at least be on a par with 2002.
Investment income is by its very nature difficult to forecast. Hannover Re expects asset volumes to show continued growth as a result of strong underwriting cash-flows. This expansion, however, will contrast with low returns. These opposing effects will likely balance each other out, and therefore ordinary income will be roughly on a par with the previous year. Given its policy of taking consistent write-downs in 2002 and the first quarter of the year under review, Hannover Re does not anticipate any further need for further consistent write-downs. Mr. Zeller affirmed: "As long as there are no renewed significant price slumps on the international capital markets, we expect net investment income for 2003 to surpass the previous year."
Overall, in view of developments in the first nine months and the expectations for the fourth quarter, Hannover Re anticipates a highly successful 2003 financial year. Principally due to the weakness of the US dollar, the gross premium volume is forecast to be lower than in the previous year. Provided there are no unforeseen adverse movements on capital markets and assuming the catastrophe loss experience remains within the multi-year average, the company expects to generate a consolidated net income of approximately 350 million euro.
Hannover Re, with gross premiums of EUR 12.5 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 19 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").