Hannover Re H1 Operating Profit up 15.8% to $641 Million

Germany’s Hannover Re Group posted strong first half gains with operating profits (EBIT) increasing by 15.8 percent year-on-year to €467.7 million ($641 million) compared to €403.9 million ($553 million) in the first half of 2006. Group net income was up by 14.2 percent for the period to €293 million ($402 million).

Hannover Re’s U.S. business profile has changed significantly since July 2005, when CEO Wilhelm Zeller announced a “new strategy” for its U.S. subsidiary, Clarendon Insurance Group (See IJ web site Sept. 5, 2005). Clarendon exited the program business, which was reformed as the Praetorian Financial Group (See IJ web site March 8, 2006). Nine months later Hannover Re concluded an agreement with Australia’s QBE Insurance Group to buy Praetorian for $800 million (See IJ web site Dec. 13, 2006). The transaction was completed at the end of May. Hannover Re’s U.S. presence is now almost exclusively confined to reinsurance.

Largely as a result the Group’s gross premiums contracted by 10.4 percent to €4.492 billion ($6.15 billion) from €5 billion ($6.85 billion). “It was not possible to entirely offset these effects despite the vigorous growth achieved in life and health reinsurance,” said the earnings announcement.

Zeller put the changes in a positive light, noting that, “our result as at 30 June 2007 is a good platform for achieving our 2007 profit target – namely a return on equity of at least 15 percent after tax.” He stated that “following the sale of Praetorian we shall now concentrate exclusively on our core business of non-life and life/health reinsurance. With our strategic orientation as a ‘Multi Specialist’ we are positioned across a broad front and optimally diversified.”

The earnings report stressed the “continued good profit opportunities available on many markets, not only in non-life and life/health reinsurance but also on the capital markets.” Consequently, “Hannover Re is looking to a very good result for the full 2007 financial year.”

Zeller explained: “We have already reallocated the risk capital freed up by the sale of Praetorian to other attractive business avenues in the reinsurance sector. By running a higher retention in the still lucrative property catastrophe segment it is possible to tap into promising scope for boosting profitability. Not only that, the expansion of life and health reinsurance, the cultivation of new markets in Central and Eastern Europe as well as in the high-growth Islamic reinsurance market – together with the increased stake in E+S Rück – all offer Hannover Re favorable opportunities for redeployment of freed up capital.”

He also noted the “largely good” market in non-life reinsurance, and observed that, “this trend was confirmed most recently by the renewals as at 1 July 2007 in the United States, when around a third of our portfolio in North America was renegotiated. Even though the hard market has now passed its peak and some ceding companies are raising their retentions, the rate level remains attractive overall.”

In view of the positive developments Hannover Re said it “expects to close the full 2007 financial year on a very good note.” Zeller explained: “Assuming that the burden of major claims is within the expected bounds and there are no downturns on capital markets, another excellent result should be attainable in the current year. Additional non-recurring income of around €180 million ($247 million) is expected from the reform of corporate taxation. Yet even without the effect of tax reform Hannover Re anticipates a result in excess of that in 2006. It remains the company’s intention to pay out a dividend in the range of 35 percent to 40 percent of the normalized result.

The full report and aditional comments are available of the Group’s web site, as noted below.

Source: Hannover Re – www.hannover-re.com