Hannover Re Posts Strong Q1 Results

Germany’s Hannover Re, the world’s fourth largest reinsurer, joined the growing list of companies reporting excellent first quarter results. Despite a decline in gross premium income the company postednet income of 96.9 million euros ($115.3 million) for the quarter, a 36.1 percent increase over the same period in 2003.

Operating profits (EBIT) as of March 31, 2004 increased by almost 42 percent to 154.5 million euros ($183.8 million); net investment income rose by 43.5 percent to 298.5 million euros ($355.2 million), while Hannover’s combined ratio in P/C reinsurance fell to 95.4 percent from 100.3 percent in the first quarter of 2003.

The bulletin noted that “claims experience in the first quarter was satisfactory” with major losses at 28.3 million euros ($33.7 million) or 4.2 percent of net premiums, “somewhat below the multi-year average.” It called the result “all the more remarkable given the enlarged proportion of long-tail casualty business – where, unlike in the property lines, the combined ratio typically is significantly higher in the year when a treaty is first concluded.”

“The company was again able to profit from the opportunities offered by the reinsurance markets and generated excellent results despite markedly lower gross premium income than in the comparable quarter of the previous year – in part due to exchange-rate effects,” said the bulletin. “With our ‘More from less’ initiative we have established a solid foundation for the accomplishment of our ambitious annual targets and demonstrated that the primary concern in our industry is profit, not volume”, Executive Board Chairman Wilhelm Zeller stressed. He summed up this business principle with the catchphrase “Volume is vanity, profit is sanity.”

Hannover seems to be implementing that principle. The bulletin noted that in the first quarter of 2004 “gross written premiums across all four business groups contracted substantially by 21.8 percent, amounting to 2.5 billion euros ($2.975 billion).” In the same period of 2003 GWP equaled 3.2 billion euros ($3.8 billion). Hannover noted, however, that “at constant euro exchange rates, especially against the US dollar, the decline would have been 15.2 percent. Parallel to this development the level of retained premiums from the business written increased appreciably, as a consequence of which net premiums fell by a mere 4.5 percent to 1.6 billion euros ($1.9 billion)” compared to 1.7 billion euros ($2 billion) in Q1 2003. “After allowance for exchange-rate effects, this figure is roughly on a par with the previous year.”

hannover also indicated that “treaty renewals in property and casualty reinsurance as at 1 January 2004, when roughly two-thirds of all treaties were renegotiated, were highly successful. This positive trend was sustained as at the renewal date of 1 April 2004. Further improvements in rates and conditions were obtained in almost all lines.”

Zeller pointed out: “We used this development to further optimise our portfolio for the years ahead. Most importantly, we scaled back high-volume but lower-margin proportional business while at the same time continuing to expand our involvement in the casualty sector”.

Hannover said one of the main factors in the GWP decline was “due in particular to the restructuring of HDI business and the ‘More from less’ initiative. In the former case, Hannover Re no longer accepts the entire volume of its affiliates but only the portion that it intends to retain. Although this reduces the gross premium it also decreases the reinsurance recoverables, the level of which has been under critical scrutiny by the rating agencies since last year. Under the ‘More from less’ initiative acceptances are scaled back in those areas offering only below-average profitability.”

Commenting on the company’s outlook for the rest of 2004, Zeller stated: ” We expect our business to continue to develop favourably in the course of the 2004 financial year. It is evident from the treaty renewal season in property and casualty reinsurance that the advantageous market rates and conditions are holding firm. In view of the restructuring of the HDI business, the ‘More from less’ initiative and the protracted dollar weakness, however, Hannover Re expects lower premium volume in property and casualty reinsurance for the full year, too. Assuming that the major loss experience remains in line with the multi-year average, the result should once again surpass the previous year.”