Germany’s Hannover Re posted strong growth in the first quarter of 2005, with operating profits (EBIT – i.e. excluding investment gains, interest and taxes) of 179.5 million euros ($229 million), a 16.2 percent gain over the same period in 2004. Net earnings were 107.7 million euros ($137.4 million), an 11.1 percent gain over last year.
The company said that all four of its business groups turned in positive results. “Hannover Re made the most of the sustained highly advantageous market conditions in property and casualty reinsurance and continued to profitably expand its business,” said the bulletin. “Despite an unusually high burden of catastrophe losses in the first quarter, an excellent combined ratio of 97.1 percent was achieved in property and casualty reinsurance.”
“With this result we have taken the first major step towards achieving our defined profit target for 2005”, Wilhelm Zeller, Chairman of the Executive Board, emphasized.
Hannover Re’s capital base also continued to improve: “stockholders’ equity increased by 4.0 percent compared to the position as at 31.12.2004 to reach 2.7 billion euros [$3.45 billion], the bulletin continued. In a separate announcement (See following article) the company also revealed plans to place a subordinated debt issue (hybrid capital) in European financial markets.
“The Group’s gross written premium expanded by 6.2 percent for the first time after sharp decreases in 2003 and 2004,” the announcement noted. “Gross premiums for the first quarter of 2005 totaled 2.6 billion euros ($3.32 billion], compared to 2.5 billion euros ($3.19 billion) in the first quarter of 2004. “At constant euro exchange rates, especially against the US dollar, growth would have been even as much as 10.1 percent.”
Hannover Re said its P/C renewals as of January 1, 2005 – when around two-thirds of the treaties are renegotiated – and April 1, 2005 “clearly showed that the advantageous market conditions are holding firm. In most segments stable rates were obtained at unchanged conditions. In some lines – e.g. in casualty business – it was even possible to secure modest improvements.”
Zeller commented: “In view of the sustained favorable state of the market we were able to profitably enlarge our business volume. In so doing, we benefited especially from the weakness of some competitors and – particularly on the German market as well as in worldwide credit/surety business – were able to substantially expand our market shares.”
Hannover’s gross premium income in P/C reinsurance climbed by 11.8 percent to 1.3 billion euros ($1.658 billion) from 1.2 billion euros ($1.53 billion) in Q1 2004. The company observed that “at constant exchange rates, especially against the US dollar, growth would have been as strong as 14.9 percent. The level of retained premiums was 6.5 percentage points higher, and net premiums consequently surged by 26.9 percent to 849.9 million euros ($1.0845 billion].”
The bulletin duly noted that “2005 got off to a turbulent start. The winter storm ‘Erwin’ as well as two fire claims and a credit loss produced a net burden for Hannover Re’s account of 93.3 million euros ($119 million) as against 28.3 million euros ($36 million) in the comparable quarter of the previous year. This corresponds to 11.0 percent (4.2 percent) of net premiums, a figure well in excess of the multi-year average of 5 percent.” The company noted that the “significance of this development in just a single quarter should not be overestimated. The high quality of the portfolio is borne out by the fact that the combined ratio still reached a very good 97.1 percent (95.4 percent).”
Commenting on Hannover Re’s outlook, Zeller indicated: “We expect a favorable business development over the course of the 2005 reporting year.” Hannover said rates and conditions remain good in P/C reinsurance, and its looking at “sustained premium growth. Provided major losses remain within the bounds of the multi-year average as the year progresses, the result generated by property and casualty reinsurance should again surpass the previous year.”
The bulletin did note, however: “Premium income in program business will be lower than in the previous year. Clarendon’s restructuring efforts should be rewarded with a positive result that will build on 2003 (42.2 million euros [$538 million]) and thus at least cover the cost of capital.
“In view of the development of our business groups discussed above, I am confident that we can significantly boost our profitability in the year under review”, Zeller continued. Assuming that major loss expenditure remains in line with the multi-year average and provided there are no adverse movements on capital markets, Hannover Re anticipates net income in the order of 430 – 470 million euros ($550 to $600 million), or roughly 3.60 – 3.90 euros a share ($4.60 to $4.98).
The full report and further comments may be obtained on the company’s Website at: http://www.hannover-re.com.
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