Hannover Re posts outstanding result

Monday, 29. March 2004 11:00

* Highest operating profit (EBIT) in company's history
* Combined ratio in property and casualty reinsurance 96.0%
* Financial reinsurance triples operating profit
* Net income in life and health reinsurance increases by
more than half
* Return on investments surpasses five-percent mark
* Policyholders' surplus 3.7 billion euro (previous
year: 3.0 billion euro)
* Return on equity 17.1% (15.7%)
* Proposed dividend: + 11.8% to 95 cents a share (85 cents)

Hannover, 29 March 2004: The 2003 financial year was once again a
highly successful one for Hannover Re. As Wilhelm Zeller, Chairman of
the Executive Board, reported at the press conference on the annual
results in Hannover, the company recorded the best operating result
in its history. As Mr. Zeller emphasised: "This is all the more
remarkable given the fact that investment income - owing to market
factors - only generated an average contribution and the weak US
dollar adversely impacted two-thirds of our gross premium volume".
The operating profit (EBIT) was boosted by 55.5% to 732.1 million
euro (470.9 million euro). Net income for the year under review
totalled 354.8 million euro (267.2 million euro) or 3.24 euro (2.75
euro) a share. All four business groups made positive contributions
to this performance.

Gross premium income contracted by 9.0% to 11.3 billion euro
(12.5 billion euro). This decline was due to exchange-rate effects as
well as restructuring activities, most notably in property and
casualty reinsurance. At constant exchange rates, especially without
the 21.1% depreciation of the US dollar against the euro, gross
premiums would have risen by 1.9%. Net premiums earned increased by
6.1% to 8.2 billion euro (7.7 billion euro) due to the higher level
of retained premiums.

Appreciable rate increases and improved terms and conditions were the
dominant features of the property and casualty reinsurance market in
2003. In areas where a flattening-off or even a decline could already
be observed, the premium level nevertheless remained highly
satisfactory. "Independently of our normal cycle management, we used
the hard market to optimise our portfolio in light of long-term
profitability considerations and scale back specific acceptances",
Mr. Zeller emphasised. Furthermore, Hannover Re no longer accepts the
entire reinsurance volume of the HDI affiliates, but rather only the
portion that it carries in its retention. Gross written premiums
consequently contracted by 20.5% to 4.8 billion euro (6.0 billion
euro). The decrease was also a result of the sharp upward revaluation
of the euro against the US dollar. At constant exchange rates the
reduction would have been only 13.9%. Due to a substantially higher
retention of 72.2% (62.7%), net premiums remained stable at
3.5 billion euro.

After the disastrous flooding suffered in Europe in the previous
year, the year under review witnessed significantly fewer insured
major losses. The amount of 51.5 million euro - a mere 1.5% (5.2%) of
net premiums - was well below the multi-year average. The largest
recorded loss event was a series of tornadoes in the USA in May,
causing net claims expenditure of 16.3 million euro. The quality of
the portfolio was once again impressively borne out by the excellent
combined ratio. Despite the higher proportion of long-tail business
and a very conservative reserving policy, the figure of 96.0%
improved slightly on the very good 96.3% achieved in the previous

The underwriting profit was boosted by 7.9% to 141.1 million euro
(130.8 million euro), clearly underscoring the profitability of the
property and casualty reinsurance portfolio. Below the line this also
translated into a record operating profit that climbed by 52.4% to
465.9 million euro (305.6 million euro). Net income was hampered by
sharply higher tax expenditure and thus reached 167.0 million euro
(154.1 million euro) or 1.53 euro (1.59 euro) a share.

In life and health reinsurance the Group's position in the
international arena was expanded, and Hannover Re - operating in this
business group under the Hannover Life Re brand - now ranks among the
top three life reinsurers worldwide. Gross premiums in the original
currency grew by 2.2%; however, the devaluation of various foreign
currencies - especially the US dollar against the euro - served to
reduce gross premium income in the 2003 financial year to 2.3 billion
euro (2.5 billion euro). The effect on net premiums earned, which
contracted from 2.1 billion euro to 1.9 billion euro, was similar.
The composition of the portfolio shifted in the year under review
towards the preferred lines of life, annuity and personal accident
business, which now account for altogether 80% (68%) of the total
premium volume. EBIT improved by 25.8% to 61.0 million euro
(48.5 million euro), and hence this business group, too, recorded its
best operating result in company history. Net income for the year
grew by more than 50% to 46.6 million euro (30.0 million euro) or 43
cents (31 cents) a share.

The development of financial reinsurance was exceptionally gratifying
in 2003. Operating in this business group under the brand name
Hannover Re Advanced Solutions, Hannover Re is one of the three
largest providers in the world. "Under our underwriting policy we
limit ourselves to classical financial reinsurance products and do
not participate in capital-market-driven structured transactions",
Mr. Zeller stressed. As part of the capital increase for a
contribution in kind the majority shareholder, Talanx AG, transferred
all its shares in HDI Reinsurance (Ireland) Ltd. to the Hannover Re
Group effective
1 July 2003. This served to further reinforce the Group's capital
strength and enhance its portfolio diversification. Gross written
premiums were substantially boosted despite adverse currency effects,
climbing by 31.4% to 1.6 billion euro (1.2 billion euro). Growth
would have been as much as 48.5% at constant exchange rates. Net
premiums earned were also in the region of 1.6 billion euro
(1.2 billion euro). The operating profit (EBIT) tripled year-on-year
to reach a record level of 148.2 million euro (47.8 million euro).
Net income for the year surged by a triple-digit margin, rising by as
much as 149.6% to reach 99.1 million euro (39.7 million euro) or
90 cents (41 cents) a share.

The program business of the Hannover Re Group is written primarily by
its US subsidiary Clarendon Insurance Group, which is the undisputed
market leader in the United States. "In recent years we have replaced
around 50 % of all the programs with more profitable business. We are
now increasingly reaping the rewards of this restructuring", Mr.
Zeller noted. The "new" Clarendon generated satisfactory results. The
gross premiums booked by all companies writing program business
within the Hannover Re Group contracted by 3.0% to 2.6 billion euro
(2.7 billion euro) solely due to exchange-rate factors; at constant
exchange rates gross premium income would have increased by 15.4%
compared to the previous year. With the level of retained premiums
rising by 8.6 percentage points, net premiums earned grew by 38.8% to
1.2 billion euro (0.8 billion euro). Last year's gratifyingly low
combined ratio of 93.8% increased to 98.3%: the result was burdened
by the compromise settlement of legal disputes involving Clarendon
with respect to old business; these expenditures are, however, being
reclaimed from Clarendon's previous owners as per the contractual
arrangements. The operating profit (EBIT) decreased solely because of
these charges from 69.0 million euro to 57.1 million euro. The net
income for the year generated from program business amounted to
42.2 million euro (43.3 million euro) or 39 cents (45 cents) a share.

Hannover Re is relatively satisfied with the development of net
investment income. Based on the very good cash flow from the
underwriting account, the total asset portfolio (excluding funds held
by ceding companies) grew by a pleasing 13.1% to 14.4 billion euro
(12.7 billion euro). At constant exchange rates, the asset volume
would have grown by as much as 23.3%. "The excellent development of
our reinsurance business combined with the successfully implemented
capital increase in the second quarter produced a high net inflow of
cash", Mr. Zeller explained. The ordinary income of 1.1 billion euro
remained virtually on a par with the previous year. Bond yields
declined worldwide in the year under review, thereby offsetting the
additional returns generated by the larger asset portfolio. The
disposal of investments produced a profit on balance of 140.7 million
euro (93.3 million euro). The result here was improved by reduced
write-downs on securities, which at 99.3 million euro came in
significantly lower than in the previous year. Write-downs on
equities amounted to 65.3 million euro in the year under review -
with 46.0 million euro attributable entirely to the first quarter;
the comparable figure for the previous year was 164.6 million euro.
Total net investment income thus increased by a pleasing 15.4% to
1.1 billion euro (928.4 million euro), producing a return of 5.1% on
the average asset portfolio (including funds held by ceding

The operating profit (EBIT) of the Hannover Re Group surged by 55.5%
in the year under review to 732.1 million euro (470.9 million euro),
the best performance in the company's history. "The net income of
354.8 million euro (267.2 million euro) was also unparalleled,
leaving aside the result in 2000, which was boosted by a
non-recurring tax effect", Mr. Zeller explained. This produced
earnings of 3.24 euro (2.75 euro) a share. The return on equity after
tax increased by 1.4 percentage points in the year under review to

The combined capital increase for cash and a contribution in kind
implemented in June 2003 strengthened the stockholders' equity of
Hannover Re by 530 million euro; it now stands at 2.4 billion euro
(1.7 billion euro). The issuance of 9.7 million shares as part of the
capital increase for cash also served to enlarge the free float by
around 40%, thereby significantly improving the liquidity and hence
the attractiveness of the Hannover Re share. Under the capital
increase for a contribution in kind Hannover Re received what is now
Hannover Reinsurance (Dublin) Ltd. - formerly HDI Re (Ireland) Ltd. -
against issuance of 13.7 million new shares. Thanks to this company's
strong profitability the capital increase resulted in only minimal
dilution for shareholders.

In accordance with the company's dividend policy the Executive Board
and Supervisory Board will propose to the Annual General Meeting that
an increased dividend of 95 cents (85 cents) a share be distributed.
This corresponds to a dividend yield of approximately 3.4%.

Outlook for 2004

Most markets in property and casualty reinsurance still offer very
good profit potential. During the treaty renewals as at 1 January
2004 - when roughly two-thirds of treaties were renegotiated - it was
possible to obtain rate increases and improved conditions across
virtually all segments or at least maintain the very good level
already attained. Some premium erosion occurred in specific segments
which had shown the strongest rate increases over the past two years.
This was especially true of aviation business, in which Hannover Re
systematically scaled back its involvement. However, Hannover Re
further enlarged its participation in North American casualty
business - a segment which has grown steadily more attractive.
Provided the burden of major losses remains within normal bounds,
property and casualty reinsurance should continue to develop very
favourably in 2004. "We again expect this business group to generate
by far the largest contribution to consolidated net income", Mr.
Zeller affirmed.

Life and health reinsurance should also develop favourably in the
current financial year. Demand for solutions in the areas of both
risk-oriented coverage and old-age provision is set to rise steadily
in almost all markets owing to the demographic trend. Particularly
vigorous growth impetus is anticipated from the major insurance
markets of the United States and Japan as well as in Continental
Europe, especially in the segment of unit-linked products. Adjusted
for exchange-rate effects, however, gross premium income is likely to
show only minimal growth - or possibly even a slight decline.
Profitability should, however, continue to improve. Hannover Re
anticipates appreciable double-digit growth in both the operating
profit (EBIT) and net income.

In financial reinsurance demand for tailor-made solutions is expected
to increase. Premium income, however, is likely to be lower in 2004
owing to the non-renewal of a number of high-volume contracts. It
should nevertheless be possible to further boost profits in this
business group in the current financial year.

The rate increases in program business will probably be less marked
in 2004 than in the year under review owing to the emerging
competitive pressure on the market. In Europe and South Africa
Hannover Re will continue to extend its market position through its
subsidiaries Inter Hannover and Compass. A substantially improved
result is anticipated in 2004.

For 2004 Hannover Re forecasts - subject to normal movements on the
capital market - a net investment income on previous year's level.
The anticipated positive underwriting cash flow should further boost
the volume of assets, and despite continuing low yields this should
favourably impact investment income.

Hannover Re further optimised its capital resources with the
successful placement of subordinated debt in the amount of
750 million euro in February 2004. In addition, the company almost
entirely bought back the debt issued in 1999 with a volume of
400 million US dollars, thereby profiting from the euro's
advantageous exchange rate against the US dollar.

Assuming that the burden of losses remains within the multi-year
average and that there are no unexpected adverse movements on capital
markets, Hannover Re is optimistic that it can once again
significantly increase its profit. "We expect to achieve consolidated
net income of 390 to 430 million euro and hence earnings of between
3.20 and 3.60 euro a share", Mr. Zeller concluded.

For further information, please contact Eric Schuh (tel.
+49 / 511 / 56 04-15 00; fax +49 / 511 / 56 04-16 48, e-mail

Hannover Re, with gross premiums of approximately EUR 11 billion, is
one of the five largest reinsurance groups in the world. It transacts
all lines of property/casualty, life/health and financial/finite-risk
reinsurance as well as program business. It maintains business
relations with more than 3,000 insurance companies in about 150
countries. Its worldwide network consists of more than 100
subsidiaries, branch and representative offices in 19 countries. 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").
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