Hannover Re reports highly satisfactory interim result

Hannover Re reports highly satisfactory interim result * Operating profit (EBIT) +14.3% * Group net income +55.0% * Return on equity 25.7% * Non-life reinsurance: Net income for the reporting period +17.5% * Life and health reinsurance: Further increase in operating profit (EBIT) and special effects almost triple the net income for the reporting period * Outlook for the full financial year revised upwards * Dividend increase envisaged Hannover, 8 November 2007: In its interim report published today Hannover Re expressed considerable satisfaction with the development of its business as at 30 September 2007. "With our result we have put in place a good platform for surpassing our originally envisaged profit target for the full financial year - namely a return on equity of at least 15 percent. Indeed, taking into account the non-recurring effect from the tax reform, the return on equity is set to reach at least 20 percent", Chief Executive Officer Wilhelm Zeller explained. Although the hard market in non-life reinsurance has now passed its peak, rates are still commensurate with the risks after eight consecutive years of consistent price increases. Hannover Re thus continues to be able to generate profitable business. The development of life and health reinsurance was exceptionally favourable. The operating profit (EBIT) as at 30 September 2007 improved by 14.3% on the same period of the previous year to reach 690.3 million euro (603.6 million euro). Group net income surged by 55.0% to 589.3 million euro (380.1 million euro). This figure, which reflects in part a reduction of 179.0 million euro (after minority interests) in deferred taxes resulting from the corporate tax reform, was equivalent to earnings of 4.89 euro (3.15 euro) a share. Hannover Re continues to enjoy a strong capital base: compared to the position as at year-end 2006 shareholders' equity grew by 314.8 million euro to 3.2 billion euro. The book value per share increased accordingly by 10.9%. The total policyholders' surplus, comprised of shareholders' equity, minority interests and hybrid capital, stood at 5.1 billion euro (4.9 billion euro). The gross premium booked by the Hannover Re Group contracted as expected by 11.1% as at 30 September 2007 to 6.4 billion euro (7.2 billion euro). Key factors here were the sale of Praetorian and the associated withdrawal of Clarendon from active specialty business. These effects were not entirely offset by the vigorous growth in life and health reinsurance. At constant exchange rates the decline in gross premium volume would have been 8.0%. In view of the increase in the level of retained premium to 86.4% (76.3%), net premium nevertheless climbed by 4.5% to 5.5 billion euro (5.3 billion euro). The state of the market in non-life reinsurance, the largest business group, remains favourable even though the hard market has now passed its peak. "The decisive factor is that rates in most segments are still commensurate with the risks and hence the business outlook remains bright", Mr. Zeller emphasised. Only in a few lines, such as US casualty business - and here especially directors' and officers' (D&O) insurance -, are prices and conditions no longer adequate in certain segments. Hannover Re consequently scaled back its business volume accordingly in these areas. The situation in property business was still adequate despite modest rate cuts. Prices in US property catastrophe business for the most part remained high, with slight rate reductions observed only in a few isolated areas. All in all, prospects in non-life reinsurance continue to be favourable. Hannover Re considers itself optimally positioned to face the challenges of a softening market: in typically cyclical non-life reinsurance business it has practiced a policy of systematic cycle management for many years, meaning that in upward phases it enlarges its market share, only to scale it back as the cycle turns downwards - while at the same time pinpointing attractive market and product niches such as reinsurance transacted in accordance with Islamic principles. Along with property catastrophe business, worldwide credit and surety reinsurance, marine reinsurance and the markets of Central and Eastern Europe currently offer the highest levels of profitability. The share of the lucrative German market was also boosted thanks to new business relationships. As anticipated, gross premium in total non-life reinsurance contracted as at 30 September 2007 by 21.8% relative to the same period of the previous year, falling to 4.1 billion euro (5.2 billion euro). At constant exchange rates, especially against the US dollar, the decrease would have been 19.0%. With the level of retained premium rising sharply to 83.9% (72.6%), net premium declined only marginally by 4.7% to 3.4 billion euro (3.6 billion euro). On the claims side the third quarter passed off thoroughly satisfactorily. A number of smaller natural catastrophe losses were incurred - including hurricane "Dean" with loss expenditure coming in below 10 million euro - as well as two aviation claims. All in all, the burden of catastrophe losses and major claims in the third quarter stood at 35.7 million euro. The total net burden for the first nine months amounted to 259.2 million euro. This is equivalent to 7.6% of net premium in non-life reinsurance and hence within the multi-year average of 8%. The combined ratio came in at 100.6% (100.5%). The net underwriting result of -50.3 million euro was on a par with the previous year. The operating profit (EBIT) in non-life reinsurance contracted by 2.6% to 453.2 million euro (465.3 million euro). Due to the positive effect of the corporate tax reform, Group net income rose by a substantial 17.5% to 393.8 million euro (335.2 million euro), corresponding to earnings of 3.27 euro (2.78 euro) a share. The development of the life and health reinsurance business group as at 30 September 2007 was dynamic and most gratifying: opportunities to generate growth and profitability here by organic means continue to be very good. Hannover Re, which operates in this business group under the Hannover Life Re brand name, conducts its business on the basis of a "five pillar model". This encompasses the financing of new and existing business, the development of new markets and products (such as special senior citizens' and annuity products), bancassurance, partnerships with large multinational insurance groups as well as traditional life, annuity, accident and health business. "This strategy ensures that we enjoy a promising portfolio and vigorous organic growth, thereby enabling us to further significantly boost our premium volume and result in the third quarter", Mr. Zeller emphasised. The company has identified clear growth prospects for annuity insurance in individual retirement provision in the industrialised nations: in the United Kingdom the focus continues to be on enhanced annuities; in the United States special health insurance products for seniors offered good growth potential. "In life and health reinsurance, as in non-life reinsurance, we have also set our sights on the emerging market of (re)insurance in conformity with Islamic principles. In this area we assist our clients not only with risk transfer but also with the design of new products, and we support them as regards marketing and sales methods", Mr. Zeller added. Gross premium in life and health reinsurance climbed by a vigorous 17.7% as at 30 September 2007 to reach 2.3 billion euro (2.0 billion euro). At constant exchange rates growth would have been 21.6%. The level of retained premium rose to 90.5% (86.0%), and net premium earned consequently surged by an even more appreciable 23.6% to 2.1 billion euro (1.7 billion euro). Hannover Re was similarly satisfied with the results as at 30 September 2007. The operating profit (EBIT) was virtually doubled to 209.9 million euro (107.8 million euro). This amount includes extraordinary income of around 25 million euro both from the first half-year and from the third quarter. The resulting EBIT margin of 10.0% was thus comfortably in excess of the target figure of 5.0%. Yet even without the special effects the EBIT margin would have been a very good 7.6%. Against this backdrop and assisted by the implications of the corporate tax reform, Group net income surged exceptionally strongly to 203.6 million euro after 70.8 million euro in the comparative period of the previous year. This was equivalent to earnings of 1.69 euro (59 cents) a share. Hannover Re was similarly satisfied with the performance of its investments: although capital markets were jittery in the third quarter - as a consequence of the credit crunch and the crisis on the US housing market - and hence subject to considerable volatility, Hannover Re was scarcely affected by these market movements due to its conservatively oriented, diversified portfolio. Given the very minimal holding of bonds with subprime exposure relative to the total asset volume, write-downs of a mere 4.6 million euro were taken. The cash inflow into the technical account in conjunction with market movements and a weaker US dollar left the portfolio of assets under own management - totalling 19.5 billion euro - virtually unchanged from the position as at 31 December 2006. Ordinary income excluding interest on deposits climbed by 10.5% to 627.3 million euro (567.6 million euro) due to a higher average yield in the portfolios. As part of the proactive approach taken to portfolio management - especially with regard to equities - profits of 164.3 million euro (189.8 million euro) were realised on the disposal of investments. This contrasted with virtually unchanged realised losses of 60.1 million euro (70.1 million euro). Net income from the portfolio of assets under own management grew by 5.8% to 681.0 million euro (643.6 million euro). Interest on deposits increased by 8.4% to 166.6 million euro (153.7 million euro). Against this backdrop the net investment income from the total portfolio improved on the same period of the previous year by 6.3% to 847.6 million euro (797.3 million euro). Outlook Based on the attractive market opportunities available in non-life reinsurance and life/health reinsurance and given the current state of the capital markets, Hannover Re is looking to a very good result for the full 2007 financial year. The company has used the risk capital freed up by the sale of Praetorian to tap into other attractive opportunities in reinsurance business: by running a higher retention in segments that are still lucrative it can pursue promising potential avenues for boosting profitability. Furthermore, by expanding its life and health reinsurance portfolio and cultivating new markets in Central and Eastern Europe as well as in the high-growth Islamic reinsurance market - not to mention the increased stake in E+S Rück and the assumption of the remaining 50% interest in Hannover Life Re Australasia as at 1 October 2007 - Hannover Re enjoys good scope for allocating the capital that has become available. Despite a softening market in non-life reinsurance conditions remain broadly positive - as has been borne out by all the rounds of treaty renewals completed in the course of the year to date. In those areas that have seen rate reductions, such as aviation business, prices are nevertheless still adequate. Catastrophe losses such as winter storm "Kyrill", the flooding in the United Kingdom and the windstorm/flood event in Australia should serve to at least hold prices for natural catastrophe business stable. Rate reductions in the single-digit percentage range are anticipated in the United States owing to the absence of damaging hurricanes so far this season. Property catastrophe business nevertheless remains profitable. In Germany rate increases under non-proportional programmes in motor liability business are possible in light of rising expenditures for bodily injury claims. "The annual get-togethers of reinsurers and their clients in Monte Carlo in September and in Baden-Baden and the United States in October similarly demonstrated that the rate level as a whole continues to be commensurate with the risks", Mr. Zeller noted. Current estimates suggest that the widespread fires that raged across California in the fourth quarter will produce a market loss of at least 1.5 billion US dollars. Hannover Re anticipates a net loss burden in the low double-digit millions from this event. For the full 2007 financial year the net premium volume in non-life reinsurance is likely to come in at least on a par with the previous year. Provided the burden of catastrophe losses and major claims for the full year remains in line with the expected figure of around 8% of net premium, a gratifying profit contribution can be expected. In life and health reinsurance Hannover Re is looking to further good growth impetus - stemming inter alia from European markets as well as a number of Asian markets and South Africa. In October 2007 Hannover Re established a new subsidiary in Bermuda that will assume an important position within the life and health reinsurance group and significantly strengthen the worldwide network. For the business group as a whole Hannover Re expects appreciable growth in premium volume and double-digit increases in results. On the investment side the anticipated positive cash flow over the remainder of the year should serve to boost the asset volume. Given a normal market environment, further growth is likely in the income generated from assets under own management. Bearing in mind the good development of the operational business described above and the non-recurring effect associated with the reform of corporate taxation, Hannover Re anticipates a very good result for the full 2007 financial year. "Assuming that the burden of catastrophe losses and major claims is in line with expectations and provided there are no adverse movements on capital markets, we are now looking at a return on equity of at least 20 percent for the full 2007 financial year", Mr. Zeller stated. Subject to the approval of the relevant boards, an increased dividend should therefore be possible. The Executive Board intends to keep to its payout ratio in the range of 35% to 40% of the ordinary result. In order to enable shareholders to also share in the once-only effect of the tax reform, the Executive Board is considering an additional special distribution. For further information please contact: Press and Public Relations / Investor Relations: Stefan Schulz (tel. +49 / 511 / 56 04-15 00, e-mail: stefan.schulz@hannover-re.com) Press and Public Relations: Gabriele Handrick (tel. +49 / 511 / 56 04-15 02, e-mail: gabriele.handrick@hannover-re.com) Investor Relations: Gabriele Bödeker (tel. +49 / 511 / 56 04-17 36, e-mail: gabriele.boedeker@hannover-re.com) Hannover Re, with a gross premium of around 9 billion euro, is one of the leading reinsurance groups in the world. It transacts all lines of non-life and life and health reinsurance. 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 around 20 countries with a total staff of roughly 2,000. 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.