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Hannover Rück (FRA:HNR1) Hannover Re Group: Profit decline as at 30 September 2008 due to sharp fall in equity prices and above-average burden of catastrophe losses / Profit forecast for full 2008 financial year no longer attainable / Good outlook for reinsurance business in 2009
Hannover Re had made its profit forecast subject to the reservations that capital markets would recover and the burden of catastrophe losses would not significantly exceed the expected level of 10% of net premium in non-life reinsurance. Neither of these conditions has been met in the second half of the year.
The crisis on international capital markets has intensified still further compared to the first half of 2008, inevitably leaving its mark on Hannover Re's investment income. Despite the financial market crisis write-downs on fixed-income securities - which constitute by far the bulk of the asset portfolio - remained relatively modest; nevertheless, Hannover Re has been impacted by the dramatic slump in equity prices.
For the first nine months of 2008 Hannover Re booked write-downs and unrealised losses of around EUR 466 million, roughly EUR 360 million of which was taken on equities. This contrasted with a net profit of EUR 77 million from realised gains and losses on investments. Net investment income as at 30 September 2008 will therefore come in sharply lower. As of 30 September 2008 8% of Hannover Re's portfolio was invested in equities. The company reduced this exposure significantly in October. Nevertheless, further charges will have to be taken. Assets under own management increased as at 30 September 2008 thanks to a positive cash flow from the technical account and the recovery of the US dollar. The return on investment for the first nine months stood at 2%.
The burden of catastrophe losses also came in higher than anticipated. Hurricanes "Gustav" and "Ike" will cost the company a total amount in the order of EUR 250 million; Hannover Re expects the latter to produce an insured market loss in the region of USD 15 - 20 billion. As a consequence of these events and other major claims, the net burden of catastrophe losses as at 30 September 2008 - at around 14% of net premium in non-life reinsurance - is higher than the expected level of 10%.
Despite the strains discussed above Hannover Re will still report a positive operating result (EBIT) for the first nine months of 2008. Since losses on equities are not tax-deductible in Germany, the tax load amounts to more than EUR 100 million. After interest and minorities Hannover Re will post a negative Group result of some EUR 140 million. This means that the profit target of a return on equity in excess of 15% is no longer attainable.
Looking to further developments on the reinsurance side, the company is cautiously optimistic. It is Hannover Re's expectation that the capital depletion triggered by the financial market crisis - which has also made itself felt in the insurance industry - will prompt a hardening of the markets. This will be reflected in substantially higher rates in a number of lines. The outcome of the 2009 renewal season is therefore expected to be favourable. Hannover Re is very well placed to profit from these developments.
As planned, Hannover Re will publish its figures for the first nine months as well as the outlook for the full 2008 financial year on 5 November 2008.
For further information please contact:
Press and Public Relations / Investor Relations: Stefan Schulz (tel. +49 / 511 / 56 04-15 00, e-mail: stefan.schulz@hannover-re.com)
Press and Public Relations: Gabriele Handrick (tel. +49 / 511 / 56 04-15 02, e-mail: gabriele.handrick@hannover-re.com)
Hannover Re, with a gross premium of around 8 billion euro, is one of the leading reinsurance groups in the world. It transacts all lines of non-life and life and health reinsurance. It maintains business relations with more than 5,000 insurance companies in about 150 countries. Its worldwide network consists of more than 100 subsidiaries, branch and representative offices in around 20 countries with a total staff of roughly 1,800. The rating agencies most relevant to the insurance industry have awarded Hannover Re very strong insurer financial strength ratings (Standard & Poor's AA- "Very Strong" and A.M. Best A "Excellent").
Disclaimer: Some of the statements in this press release may be forward-looking statements or statements of future expectations based on currently available information. Such statements are naturally subject to risks and uncertainties. Factors such as the development of general economic conditions, future market conditions, unusual catastrophic loss events, changes in the capital markets and other circumstances may cause the actual events or results to be materially different from those anticipated by such statements. Hannover Re does not make any representation or warranty, express or implied, as to the accuracy, completeness or updated status of such statements. Therefore, in no case whatsoever will Hannover Re and its affiliate companies be liable to anyone for any decision made or action taken in conjunction with the information and/or statements in this press release or for any related damages.
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