HANNOVER, Germany, Feb. 7, 2006 (PRIMEZONE) --
-- Stable premium despite reduced risks
-- Rate increases: up to 100% and more in hurricane-exposed
regions, up to 200% in marine business, other segments stable
-- New pricing models implemented on the market
-- Return-on-equity target for 2006: at least 15%
Hannover Re was generally satisfied with this year's treaty renewals in property and casualty reinsurance; the hard market has been sustained. "Although not all our expectations were realised, we were still able to top the already very high rate level in some areas", Chief Executive Officer Wilhelm Zeller noted. The treaty renewals again demonstrated that ceding companies are attaching ever-greater importance to their reinsurers' financial strength; thanks to its above-average ratings Hannover Re has thus been able to profit disproportionately strongly from this climate.
Although the company scaled back its writing of risks in particularly loss-prone segments (e.g. by as much as 22% in US windstorm business), gross premium income for the entire property and casualty reinsurance portfolio remained stable due to the rate increases. Out of a total premium volume of EUR 3,978 million in property and casualty reinsurance in the 2005 underwriting year, treaties worth altogether EUR 2,665 million (67%) were due for renewal as at 1 January 2006. A volume of EUR 2,347 million (59%) was renewed, whereas treaties worth EUR 318 million (8%) were either cancelled or renewed in modified form. Including additions of EUR 278 million (7%) from new and modified treaties as well as rate improvements, the new premium volume thus amounted to EUR 2,625 million and gross premium income for the property and casualty reinsurance business group remained virtually unchanged at EUR 3,950 million.
Last year's exceptionally intense hurricane season was the primary factor in preserving a favourable market climate for reinsurers in the USA. Rate increases averaging around 50% but sometimes in excess of 100% were obtained, most notably in the programmes impacted by windstorm losses. The development of the other segments was also highly gratifying, with average rate increases of 5 to 10%.
This positive trend was further fostered by updated accumulation control and by pricing calculations revised in light of the experience with hurricane "Katrina": loadings were implemented on the market for components that had previously been neglected or inadequately modelled, such as cyclical climate fluctuations, flood and inundation damage, business interruption losses or demand-driven price rises for restoration services. "By adjusting our accumulation and pricing models and reducing peak risks we have done our homework in the aftermath of the storms and made optimal use of the market opportunities that presented themselves. Our portfolio is now considerably more weatherproof and superbly poised for the challenges ahead in the current year", Mr. Zeller stressed.
Outlook for 2006
The advantageous conditions on the property and casualty reinsurance market are likely to improve still further in the upcoming renewal phases (1 April, 1 June/July and 1 October): "The adjustment of our pricing models was not restricted to windstorm aggregates in the USA, but extended to other areas of peak exposure in our portfolio - such as earthquake covers", Mr. Zeller explained. What is more, competitors who have not as yet built the new loadings into their quotations will have to follow suit in the course of the year, a move that should cause prices for catastrophe covers to rise across the board. "In view of the rating agencies' more exacting capital adequacy requirements - which also have to be incorporated into the pricing calculations - and the risks that have to be remodelled across a broad front, we expect increasing demand to go hand-in-hand with shrinking supply", Mr. Zeller emphasised.
In light of the successful treaty renewals as at 1 January, Hannover Re anticipates a very good 2006 financial year. Assuming that the burden of major losses is in line with the multi-year average and provided there are no unexpected downturns on the capital markets, a record result should be attainable in the current year: "It is our expectation that we can achieve a return on equity of at least 15% in 2006", Mr. Zeller stated. As for the dividend, the company will then look to a payout ratio of some 35 to 40%.
Hannover Re, with a gross premium 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 specialty insurance. 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").
Disclaimer: Some of the statements in this press release may be forward-looking statements or statements of future expectations based on currently available information. Such statements are naturally subject to risks and uncertainties. Factors such as the development of general economic conditions, future market conditions, unusual catastrophic loss events, changes in the capital markets and other circumstances may cause the actual events or results to be materially different from those anticipated by such statements. Hannover Re does not make any representation or warranty, express or implied, as to the accuracy, completeness or updated status of such statements. Therefore, in no case whatsoever will Hannover Re and its affiliate companies be liable to anyone for any decision made or action taken in conjunction with the information and/or statements in this press release or for any related damages.