Hannover Re Q1 Net Hit by Writedowns

May 28, 2003

Germany’s Hannover Re, the world’s fifth largest reinsurer, reported an operating profit of 109 million euros ($129 million) in the first quarter of 2003, compared to 174.4 million euros ($206.5 million) in the same period last year, a 38 percent drop. “Due,” the company said, “to further write-offs on investments totaling 75.3 million euro ($89.16 million).”

Net income for the quarter also decreased to 71.2 million euros ($84.3 million), compared to 90.1 million euros ($110 million) last year, a 20.9 percent drop. Net income per share fell to 73 cents (86.4 cents) from 93 cents ($1.10) in Q1 2002.

Wilhelm Zeller, Chairman of the Executive Board, presented the consolidated figures for the first quarter of 2003 at Hannover’s Annual general meeting held yesterday. “He expressed considerable satisfaction with the company’s start in the new financial year,” said a company bulletin. “Once again, Hannover Re has been able to profitably exploit the opportunities offered by the reinsurance markets,” it continued. “As anticipated, the result was strained only by the difficult situation on the capital markets – as had also been the case in the two previous quarters.”

The company, along with the rest of Europe, has had to make adjustments due to the sharply increased value of the euro against the dollar. “Gross written premiums across all four of Hannover Re’s business groups were roughly on a par with the previous year at 3.2 billion euro ($3.79 billion),” said the announcement. It explained that premium volume did not turn out to be considerably higher “primarily to movements in exchange rates. The average value of the euro against all major currencies increased by up to 23.3% (US dollar) in the reference period. Had it not been for the strengthening of the euro gross premiums would have risen by 12.7%.”

The P/C figures were disappointing as well. Gross written premiums fell 15.2 percent from 1.744 billion euros ($2.065 billion) to 1.479 billion euros ($1.75 billion), while net premiums earned slid 29.6 percent from 1.016 billion euros ($1.2 billion) to 716 million euros ($847.7 million). Operating profits in the P/C sector slid by 63.9 percent to 53 million Euros ($74.6 million) from 146 million euros ($173 million) in the same period last year, while net income decreased by 54.5 percent to 35 million euros ($41.4 million) from 76 million euros ($90 million). Hannover’s combined ratio during the period rose to 100.3 percent compared to 92.4 percent in Q1 2002.

The earnings announcement seemed to indicate that Hannover’s management feels the worst is over. “Leaving aside the write-offs on investments, the financial year has to date proven highly satisfactory for Hannover Re,” said the bulletin. “The market development and the renewal season in property and casualty reinsurance have demonstrated that the “hard market” is holding up. Even isolated signs of a leveling-off or slight declines in premium volumes as well as the absence of further improvements in conditions in specific segments cannot overshadow the generally positive impression.” Zeller added: “For the year as a whole we do not anticipate any premium growth in property and casualty reinsurance, but we do expect a higher profit contribution.”

The company was nonetheless cautious in assessing future developments in the capital markets, which are inherently difficult to foresee. For this reason the company said it was “scarcely possible to make forecasts about the net investment income.” It did indicate that it “expects the investment volume to grow, although the attainable yields will decline,” and added that “provided there are no further price declines on the international stock markets, Hannover Re does not anticipate any further need for significant write-offs. As things currently stand, it should therefore be possible to offset the write-offs incurred in the first quarter with price gains in the course of the year. “

Zeller summed up Hannover’s current position, stating: “Given the developments described above, a catastrophe loss experience in line with the multi-year average and at least no further deterioration on the capital markets, we anticipate a highly successful 2003 financial year. In our assessment, net income of between 280 million and 310 million euro remains a realistic target.”

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