Germany’s Hannover Re continues to record a steady operating performance. Just reported first-half results show net premiums earned up 9.4 percent to 5.9775 billion euros ($6.5 billion, a slight increase in operating profit (EBIT) to 285.2 million euros ($310 million) and net income (after tax) up 11 percent at 162.4 euros ($176.5 million).
In a letter commenting on the results Wilhelm Zeller, Chairman of the Executive Board, stated “In the first half of 2003 your company seamlessly built on its strong performance in the preceding quarters and again achieved very pleasing results. In the period from April to June the 2003 financial year presented us with numerous additional opportunities to renew and acquire profitable reinsurance business. Just how favourable the current market environment is can be clearly seen from our impressive operating profit (EBIT) of EUR 285.2 million.
“Property and casualty reinsurance is and will remain our highest-volume business group. Especially in liability reinsurance, we see good opportunities for further growth at a highly profitable point in the market’s cyclical upturn. The combined ratio stood at 98.6%in the first half-year, following 100.3%in the first quarter. The burden of major losses was also strictly limited in the period until 30 June 2003:just three loss events were recorded, producing a total net loss amount for our account of EUR 14.5 million [$15.75 million] – a figure far below the multi-year average.
“The first half-year as a whole, then, was a highly successful one for property and casualty reinsurance, which with a net profit of EUR 101.3 million [$110 million] (a rise of 11.7% compared to the same period in the previous year) accounted for more than 60%of consolidated net income for the reporting period.”
He also indicated that “All the other business groups similarly played a decisive part in our excellent interim result and developed entirely according to plan for the 2003 year as a whole.” Particularly notable was the increase in the company’s net investment income which rose 27.9 percent in the first half of 2003 to 486.2 million euros ($528.5 million), compared to 380.1 million euros ($413 million) in the same period of 2002.
“In June we implemented a capital increase aimed at strengthening our equity base in order to ensure that we can continue to enjoy unrestricted profitable growth,” Zeller’s letter continued. “The transaction consisted of a 10-percent increase against cash and a 13-percent increase against contribution in kind through the issuance of new shares, thereby increasing our stockholders’ equity by altogether EUR 530 million [$576 million]. “This step was very positively received by the market, as evidenced by the fact that the cash component was heavily oversubscribed within just a few hours of its announcement at an allotment price (EUR 22.60) [$24.56] only marginally below the prevailing share price at that time.”
Zeller said the move had benefited the price of Hannover Re’s shares, increasing their liquidity by 40 percent. “In my assessment, our share is significantly undervalued, he continued. The price/earnings ratio of around 7 based on the consensus profit estimate for 2004 does not nearly reflect the price that would be appropriate in view of your company ‘s profitability. Nevertheless, I am confident that the market will increasingly come to recognise this oversight, and I therefore see considerable scope for our share to move upwards.”
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