Germany’s Hannover Re Group joined Swiss Re and General Re in reporting a very successful 2003. The world’s fourth largest reinsurer posted net income of 354.8 million euros ($43I million) compared to 267.2 million euros ($324.6 million) in 2002, a 32.8 percent increase. On a per share basis net income rose to 3.24 euros ($3.94) compared to 2.75 euros ($3.34) in 2002).
Operating profit (EBIT) was even more impressive rising by 55.5 percent to 732.1 million euros ($889.5 million), compared to 470.9 million euros ($572 million) in 2002. The company said all four business groups had made positive contributions to the performance. Wilhelm Zeller, Chairman of the Executive Board, noted at a press conference announcing the results that, “This is all the more remarkable given the fact that investment income – owing to market factors – only generated an average contribution and the weak US dollar adversely impacted two-thirds of our gross premium volume”.
Gross premium income contracted by 9 percent to 11.3 billion euros ($13.73 billion), due principally to “exchange-rate effects as well as restructuring activities, most notably in property and casualty reinsurance,” said the company. “At constant exchange rates, especially without the 21.1 percent depreciation of the US dollar against the euro, gross premiums would have risen by 1.9 percent.” Net premiums earned increased by 6.1 percent to 8.2 billion euros ($9.96 billion) due to the higher level of retained premiums.
As with its contemporaries, Hannover noted “appreciable rate increases and improved terms and conditions” as the “dominant features of the property and casualty reinsurance market in 2003, with levels remaining high, even in lines where they’ve begun to flatten.
“Independently of our normal cycle management, we used the hard market to optimise our portfolio in light of long-term profitability considerations and to scale back specific acceptances,” Zeller stressed. Furthermore, Hannover Re said it “no longer accepts the entire reinsurance volume of the HDI affiliates, but rather only the portion that it carries in its retention. Gross written premiums consequently contracted by 20.5 percent to 4.8 billion euros ($5.83 billion),” which was also accentuated by the sharp fall of the dollar against the euro.
The company noted that, contrary to 2002, 2003 saw “significantly fewer insured major losses.” The amount of 51.5 million euros ($62.57 million) was “a mere 1.5 percent” of net premiums. In 2002 it was 5.2 per This years loss figures are therefore “well below the multi-year average.”
The largest recorded loss event were the tornadoes that hit the U.S. in May, causing net claims expenditure of 16.3 million euros ($19.8 million). “The quality of the portfolio was once again impressively borne out by the excellent combined ratio. Despite the higher proportion of long-tail business and a very conservative reserving policy, the figure of 96.0 percent improved slightly on the very good 96.3 percent achieved in the previous year,” said the bulletin. Underwriting profit rose by 7.9 percent to 141.1 million euros ($171.4 million), “clearly underscoring the profitability of the property and casualty reinsurance portfolio.”
Discussing its U.S. program business Hannover noted that it is “written primarily by its US subsidiary Clarendon Insurance Group, which is the undisputed market leader in the United States.” Zeller noted: “In recent years we have replaced around 50 % of all the programs with more profitable business. We are now increasingly reaping the rewards of this restructuring.”
Discussing the company’s outlook for 2004 the announcement indicated that “Most markets in property and casualty reinsurance still offer very good profit potential. During the treaty renewals as at 1 January 2004 — when roughly two-thirds of treaties were renegotiated — it was possible to obtain rate increases and improved conditions across virtually all segments or at least maintain the very good level already attained. Some premium erosion occurred in specific segments which had shown the strongest rate increases over the past two years.”
“This was especially true of aviation business, in which Hannover Re systematically scaled back its involvement. However, Hannover Re further enlarged its participation in North American casualty business — a segment which has grown steadily more attractive. Provided the burden of major losses remains within normal bounds, property and casualty reinsurance should continue to develop very favourably in 2004. “We again expect this business group to generate by far the largest contribution to consolidated net income,” Zeller affirmed.
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