Hannover Re Posts $486 Million Half-Year Net Income

Germany’s Hannover Re joined the expanding list of large reinsurers who are having a pretty good year due to the decline in natural catastrophes. The Group earned €380 million ($486 million) in the first six months of its fiscal year that ended Sept. 30.

Additional highlights cited in its report were:
— Return on equity 18.6 percent after tax
— All business groups on target or better than planned
— Major losses in property and casualty reinsurance only 3.1 percent of net premium
— Operating profit (EBIT) €707 million [$904 million]
— Earnings per share €3.15 [$4.03]
— Book value per share +9.4 percent since the turn of the year
— Profit forecast for 2006 raised

“With our interim result we have put in place a strong platform for revising upwards and framing in more concrete terms our originally envisaged profit target for the full financial year – namely a return on equity of at least 15 percent,” commented CEO Wilhelm Zeller. “Against this backdrop we now anticipate a return on equity comfortably in excess of 15 percent and Group net income of around €480 million [$614 million] or earnings of roughly €4.00 [$5.12] a share.”

The bulletin noted: “Market conditions in property and casualty reinsurance remain for the most part risk adequate, and Hannover Re continued to generate profitable business. The development of life and health reinsurance was especially gratifying. The financial reinsurance and specialty insurance business groups developed as planned.”

“All underwriting business groups lived up to or indeed surpassed our expectations and delivered a healthy profit contribution”, Zeller continued.

“Property and casualty reinsurance offered Hannover Re further attractive opportunities to write profitable business,” the bulletin indicated. “The renewal phase in the USA as at 1 July 2006 once again highlighted the ongoing scarcity of reinsurance capacity for US natural catastrophe business. In this climate rates remained on a high level overall, even increasing in some areas. Under programs that had been impacted by last year’s hurricanes rates climbed by up to 100 percent – and even more sharply in individual cases.”

It also noted that the “recalibration of natural catastrophe models to include loadings for risk components that had hitherto been inadequately modeled or entirely neglected was an additional factor in this favorable rate trend. The development of the casualty lines was also thoroughly favorable, and with a few exceptions prices generally held stable across the board.

“All in all, the prevailing market conditions in property and casualty reinsurance continue to be commensurate with the risks and are therefore attractive.” Zeller stressed, however, that “we do not rely exclusively on an advantageous market climate. Risk management is a high-priority issue for our company. We have taken steps across a broad front to ensure that extraordinary catastrophe losses such as hurricane events do not place an excessive strain on our result.”

Concerning Hannover Re’s future outlook, the bulletin noted: “The market environment in property and casualty reinsurance remains good on balance. All the treaty renewal phases completed to date have presented opportunities to write attractive business at prices and conditions appropriate to the risks. In catastrophe-exposed property business – at least in the United States – further rate increases can be anticipated. The annual gatherings of reinsurers and their clients in Monte Carlo, Baden-Baden and the USA also clearly demonstrated that there is no reason to expect widespread rate cuts or deteriorations in terms and conditions in the year ahead. In those areas that are witnessing rate reductions – such as aviation lines -, prices for the risks written are still adequate.

“Despite the currently advantageous state of its main markets, Hannover Re always keeps an eye on opportunities to tap into new markets: in view of the enormous growth potential offered by the worldwide Islamic insurance market Hannover Re has decided to establish a subsidiary in Bahrain for the writing of Sharia-compliant reinsurance (known as retakaful business). The company will commence business operations in November in good time for the renewal season.”

“Despite scaling back peak exposures Hannover Re expects premium growth of 2 percent to 4 percent in its total property and casualty reinsurance portfolio. As long as the burden of major losses remains within the multi-year average of around 8 percent of net premium, the company anticipates a very healthy profit contribution.”

The full report and additional analysis may be obtained on the Group’s Website at: http://www.hannover-re.com.