· Gross premium surges by 11.5%
· Major loss burden still higher than the expected level
· Combined ratio in non-life reinsurance: 99.0%
· Life and health reinsurance grows by 14.2% and EBIT margin within the target corridor
· Good investment income: EUR 872.2 million
· Pleasing Group net income: EUR 582.0 million
· Book value per share rises by 20.0% to EUR36.96
· Return on equity: 19.0%
· Profit target for 2010 raised to more than EUR700 million
Hannover Re reported robust premium growth and better-than-expected Group net income as at 30 September 2010. This was driven by strong demand in non-life and life/health reinsurance, healthy investment income and a positive tax effect. "In view of the highly gratifying development of business in the third quarter and the additional income deriving from the tax effect on which we reported in our ad hoc announcement dated 20 October 2010, we are raising our profit forecast for the full financial year from around EUR 600million to more than EUR 700million", Chief Executive Officer Ulrich Wallin confirmed.
Further premium growth
Gross written premium in total business surged by an appreciable 11.5% as at 30 September 2010 to reach EUR 8.6billion. At constant exchange rates, especially against the US dollar, growth would have come in at 7.7%. The retention decreased to 91.0% (92.3%). Net premium earned climbed by 11.1% to EUR 7.5billion (EUR 6.7billion).
Exceptionally pleasing result
The operating profit (EBIT) again slightly exceeded the previous year's outstanding level. It stood at EUR 862.0 million (EUR 851.7million). Group net income as at 30 September 2010 closed at EUR 582.0million (EUR 596.6million). This includes the aforementioned positive effect from a tax decision handed down by the Federal Fiscal Court, which made it possible to release provisions that had been set aside on a precautionary basis. The resulting profit contribution totals EUR 98.0million. The comparable period of the previous year had, however, also been shaped by positive non-recurring effects totalling EUR 169 million. Earnings per share amounted to EUR 4.83 (EUR 4.95).
Pleasing performance of non-life reinsurance despite continued above-average burden of major losses
Hannover Re is very largely satisfied with the state of international reinsurance markets, despite a discernible trend towards gradual market softening. Prices and conditions are nevertheless broadly commensurate with the risks. "In order to remain successful going forward, it is important for us to maintain our selective underwriting policy based on detailed risk analyses", Mr. Wallin emphasised.
Gross premium in non-life reinsurance increased by 9.5% as at 30 September 2010 relative to the comparable period of the previous year to reach EUR 4.8billion (EUR 4.4billion). At constant exchange rates, especially against the US dollar, the increase would have been 6.5%. The retention dropped to 90.5% (93.4%). Net premium earned climbed by 8.0% to EUR 4.1billion (EUR 3.8billion).
The burden of major losses incurred by Hannover Re continued to exceed expectations after nine months. "Although this year's hurricane season in North and Central America was thoroughly unremarkable, we again recorded appreciable strains from natural catastrophe losses in the third quarter. The largest single loss event for us was the earthquake in New Zealand, which cost us almost EUR 90million", Mr. Wallin noted. The net burden of major losses as at 30 September 2010 totalled EUR 554.1million, after just EUR 198.2million in the comparable period. The combined ratio consequently rose to 99.0% (96.8%). Against this backdrop the net underwriting result decreased from EUR 98.1million to EUR 32.4million.
The operating profit (EBIT) soared by an appreciable 32.8% to EUR 633.4million (EUR 477.0million). Group net income increased by 32.1% to EUR 437.7million (EUR 331.3million); this includes the positive effect from the release of provisions set aside on a precautionary basis, which is reflected only in non-life reinsurance. Earnings per share stood at EUR 3.63 (EUR 2.75).
Significant double-digit organic growth in life and health reinsurance
Hannover Re is very satisfied with the development of its life and health reinsurance business, which once again showed double-digit premium growth. "We generated the strongest percentage gain in China, where we are also represented by a branch office. The still rather low insurance density in this country contrasts with a rapidly expanding middle class. For 2010 we therefore expect our business in this market to grow by more than 50%", Mr. Wallin explained.
Driven by the vigorous organic growth, gross written premium climbed sharply by 14.2% to EUR 3.7billion (EUR 3.3billion) as at 30September2010. At constant exchange rates growth would have reached 9.3%. The retention nudged higher from 90.8% to 91.5%. Net premium earned grew by 15.0% to EUR 3.4billion (EUR 3.0billion).
Profitability as at 30September2010 was also gratifying: while the operating profit (EBIT) of EUR 213.6million fell short of the result for the comparable period (EUR 338.3million), this can be attributed to the fact that the latter was influenced by positive special effects of around EUR 187 million. Had it not been for these effects EBIT would have risen by 41%. The EBIT margin of 6.3% is comfortably within the target corridor of 6% to 7%. Group net income totalled EUR 170.2million (EUR 279.9million). Earnings per share amounted to EUR 1.41 (EUR 2.32).
Investment income highly satisfactory despite low interestrates
In view of its risk-averse investment strategy and the prevailing low level of interest rates, Hannover Re expressed considerable satisfaction with the development of its asset holdings. Driven by a positive operating cash flow and favourable movements in fair values, the portfolio of assets under own management grew to EUR 25.5billion (EUR 22.5billion). Thanks to the further rise in ordinary income and sharply lower write-downs, and despite increased unrealised losses, net investment income came in slightly higher than the level of the previous year. Totalling EUR 872.2million (EUR 850.5million), it thus showed an average return of 3.6%.
Further pleasing growth in shareholders' equity
Shareholders' equity excluding minority interests improved on the level of 31December 2009 by EUR 742.3 million to reach EUR 4.5billion (EUR 3.7billion). The book value per share consequently rose by 20.0% to EUR 36.96(EUR 30.80). The policyholders' surplus, consisting of shareholders' equity, minority interests and hybrid capital, stood at EUR 6.9billion (EUR 5.6billion).
Outlook
In light of developments to date on the international reinsurance markets, Hannover Re expects the net premium for the current financial year to grow by around 8% at constant exchange rates.
By and large, markets in non-life reinsurance are still offering risk-adequate prices. There is, however, no mistaking the fact that the substantial capacity made available by reinsurers relative to the demand for their products is leading to more intense competitive pressure. Consequently, rate increases can now only be obtained under loss-impacted programmes. The oil platform disaster in the Gulf of Mexico should prompt market hardening and substantial price increases in the offshore sector. Given the large number of severe natural disasters in the current financial year price increases are also expected in catastrophe-exposed business. Hannover Re is looking to further premium growth in the area of agricultural risks as well as in emerging markets.
In non-life reinsurance Hannover Re anticipates net premium growth of around 6% and a very healthy profit contribution. This is dependent upon the burden of major losses in the fourth quarter remaining within the bounds of expectations.
The general climate in life and health reinsurance continues to be very positive. A particularly significant factor here is the demographic trend in established insurance markets such as the United States, Japan, United Kingdom and Germany. Financially oriented reinsurance solutions, i.e. models designed to strengthen the solvency base of primary insurers, are enjoying sustained demand.
Hannover Re now expects to grow net premium in life and health reinsurance by roughly 12% in the current year. The EBIT margin should come in within the target range of 6% to 7%.
On the investments side the anticipated positive cash flow should - subject to stable exchange rates - lead to further growth in the asset portfolio. In the area of fixed-income securities the focus remains on the high quality and diversification of the portfolio. "In the third quarter we began to invest in listed equities again. On grounds of prudence, though, we only envisage an equity allocation of at most 2.8% by year-end", Mr. Wallin emphasised. The return on investment in the 2010 financial year should be in the region of 3.5%.
Based on the favourable development of its business and the positive tax effect, Hannover Re is raising its profit expectation for the 2010 financial year from around EUR 600 million to more than EUR 700 million. This is subject to the premise that the burden of major losses in the fourth quarter does not exceed the expected level and also assumes that there are no adverse movements on capital markets. As for the dividend, the company continues to aim for a payout ratio in the range of 35% to 40% of its IFRS Group net income.
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