Hannover Re posts continued growth and confirms guidance

10 August 2011 Hannover Re

Hannover Re posts continued growth and confirms guidance 

 - Total premium growth: + 6.4%

 - Net burden of major losses: EUR 625.2 million (EUR 407.6 million)

 - Combined ratio in non-life reinsurance: 110.3%

 - Net investment income: EUR 672.8 million (EUR 551.4 million)

 - Operating profit (EBIT): EUR 246.8 million (EUR 490.7 million) 

 - Satisfactory Group net income: EUR 218.5 million (EUR 310.6 million)

 - Earnings per share: EUR 1.81 (EUR 2.58)

 - Guidance for Group net income 2011 unchanged: approximately EUR 500


In its interim report as at 30 June 2011 published Hannover Re expressed satisfaction with the development of its
business; coming in at EUR 166.2 million, the second quarter delivered the
anticipated profit contribution. 'Our Group net income of EUR 218 million
for the first half-year should enable us - given a normal experience in the
second half of the year - to comfortably attain our targeted year-end
profit of around EUR 500 million', Chief Executive Officer Ulrich Wallin

Further premium growth in the first half of 2011
Gross written premium for the Hannover Re Group climbed by an appreciable
6.4% as at 30 June 2011 to reach EUR 6.0 billion (EUR 5.7 billion). At
constant exchange rates growth would have come in at 7.9%. The level of
retained premium nudged slightly higher to 90.8% (90.3%). Net premium
earned grew by 6.8% to EUR 5.1 billion (EUR 4.8 billion).

Owing to the considerable burden of major losses in the first quarter, the
operating profit (EBIT) of EUR 246.8 million as at 30 June 2011 fell short
of the result for the corresponding period of the previous year (EUR 490.7
million). Group net income totalled EUR 218.5 million (EUR 310.6 million).
Earnings per share stood at EUR 1.81 (EUR 2.58). The post-tax result was
favourably influenced by a tax refund including accrued interest in an
amount of EUR 124 million as a consequence of last year's decision of the
Federal Fiscal Court (as already reported).
Satisfactory result in non-life reinsurance despite major losses 
In non-life reinsurance the gradual hardening of the markets already
observed in the renewals as at 1 April 2011 was sustained in the second
quarter. The treaty renewals as at 1 June and 1 July consequently produced
a broadly pleasing outcome, especially in property business. 'It is our
expectation that this tendency will continue in the second half of 2011,
and for 2012 too we are looking to further positive movement in reinsurance
premiums', Mr. Wallin explained. Hannover Re notes a less pronounced
tendency towards market hardening in areas that have been spared losses and
in the casualty lines.

Gross premium in non-life reinsurance increased by a substantial 8.3%
relative to the corresponding period of the previous year to reach EUR 3.5
billion (EUR 3.3 billion). At constant exchange rates, especially against
the US dollar, growth would have come in at 10.3%. The level of retained
premium remained virtually unchanged at 90.0% (90.1%). Net premium earned
rose by 8.0% to EUR 2.8 billion (EUR 2.6 billion).

The major losses incurred by Hannover Re in the second quarter were
comparatively moderate at EUR 53 million; an amount of EUR 22.7 million was
attributable to the series of tornadoes in the United States in May. In
view of the sizeable major loss burden in the first quarter, however, the
net major loss expenditure of EUR 625.2 million was significantly higher
than in the corresponding period of the previous year (EUR 407.6 million).
The combined ratio therefore stood at 110.3% (99.5%); considered in
isolation for the second quarter, it was 97.7%.

The net underwriting result amounted to EUR -299.4 million (EUR 7.2
million). The operating profit (EBIT) in non-life reinsurance retreated to
EUR 151.2 million (EUR 333.8 million). Group net income totalled EUR 164.1
million (EUR 215.1 million). 'Bearing in mind that the major loss burden
for the first six months exceeded the anticipated level by EUR 390 
million, this performance is thoroughly satisfactory overall and it
underscores the positive development of our non-life reinsurance
portfolio', Mr. Wallin emphasised. Earnings per share amounted to EUR 1.36
(EUR 1.78).

Development of life and health reinsurance below expectations 
The general business environment in international life and health
reinsurance remains favourable. The ageing of the population in mature
markets such as the United Kingdom, United States and Germany is generating
heightened awareness of the need for provision and hence boosting demand
for annuity and life insurance products. What is more, in leading emerging
markets such as China, India and Brazil demand for retirement provision
solutions also continues to rise.

Gross written premium climbed by 3.7% as at 30 June 2011 to EUR 2.5 billion
(EUR 2.4 billion). At constant exchange rates growth would have amounted to
4.5%. Net premium earned increased by 5.3% to EUR 2.3 billion (EUR 2.2

Despite Group net income of EUR 73.9 million, the first half of 2011 did
not entirely live up to Hannover Re's expectations for life and health
reinsurance. This was due primarily to the additional reserves that had to
be set aside for Australian disability business; this portfolio is,
however, in run-off since Hannover Re stopped writing new business in this
area in 2009. As a further factor, the result in life and health
reinsurance was impacted by adverse movements in exchange rates.

The operating profit (EBIT) contracted to EUR 78.4 million (EUR 145.5
million). The EBIT margin stood at 3.4% (6.7%). Group net income as at 30
June 2011 for life and health reinsurance totalled EUR 73.9 million (EUR
113.8 million), producing earnings per share of EUR 0.61 (EUR 0.94).

Pleasing investment income 
The portfolio of assets under own management remained virtually unchanged
at EUR 25.3 billion (EUR 25.4 billion); a very positive cash flow was
opposed by portfolio reductions resulting from exchange rate effects.
Despite the sustained low level of interest rates, ordinary income from
assets under own management improved slightly on the corresponding period
of the previous year to reach EUR 447.9 million (EUR 441.2 million).
Interest on deposits also increased to EUR 161.3 million (EUR 151.2
million). Unrealised gains on assets recognised at fair value through
profit or loss amounted to altogether EUR 53.7 million - as against
unrealised losses of EUR 86.2 million in the corresponding quarter of the
previous year. The primary factor here was the positive change in the fair
values of inflation swaps taken out last year. Thanks to the stable
ordinary investment income and the favourable development of unrealised
gains, net investment income climbed 22.0% to EUR 672.8 million (EUR 551.4
million). The exposure to so-called peripheral Eurozone nations (Portugal,
Ireland, Italy, Greece, Spain) continues to be very low at EUR 254 million
- a figure equivalent to just 1% of the assets under own management. Since
Hannover Re does not hold any Greek government bonds, impairments were not
incurred in this regard either.

Shareholders' equity remains on a high level
The equity attributable to shareholders of Hannover Re totalled EUR 4.3
billion at the end of the first half-year (31.12.2010: EUR 4.5 billion).
The book value per share amounted to EUR 35.86 (EUR 37.39). The reduction
was due in large measure to the dividend of EUR 277.4 million paid in the
second quarter.

In light of the company's good market position and the highly satisfactory
conditions prevailing on international reinsurance markets, Hannover Re
expects to achieve its growth and profit targets for 2011. At constant
exchange rates, the net premium volume should grow by 7% to 8%.

In non-life reinsurance the favourable outcome of the 1 April treaty
renewals was followed by further good to very good results from the 1 June
and 1 July renewals. 'We were able to obtain further significant rate
increases in Australia and New Zealand, while the North American market
also showed appreciable tendencies towards hardening', Mr. Wallin noted.
Although rates climbed sharply here in property catastrophe business,
additional rate improvements are still needed in casualty lines.

For 2011 Hannover Re expects net premium in total non-life reinsurance to
grow by around 7% to 8% at constant exchange rates.

In life and health reinsurance, too, the prospects are bright. Hannover Re
is looking to generate net premium growth in a range of 7% to 10% for 2011
- at constant exchange rates - and expects a positive business experience
in the second half of the year.

The company anticipates a return on investment of 3.5% on its asset
portfolio for 2011.

In view of the business opportunities that are opening up and the
advantageous situation on reinsurance markets, Hannover Re confirms its
guidance of Group net income in the order of EUR 500 million for the full
2011 financial year. This is subject to the premise that the major loss
expenditure in the second half of the year does not significantly exceed
the remaining expected level of EUR 295 million and also assumes that there
are no drastic downturns on capital markets.

As for the dividend, Hannover Re continues to aim for a payout ratio in the
range of 35% to 40% of its Group net income after tax.
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