Hannover Re Says Capital Allows Steady Dividend, Potential Acquisitions

April 9, 2014

Hannover Re, the world’s third- biggest reinsurer, has sufficient capital to offer investors a steady dividend and pursue potential purchases, Chief Executive Officer Ulrich Wallin said.

“We have increased our capital over the past years so that we are now, theoretically, at an AAA level,” Wallin said in an interview in Munich. “That allows us to offer investors a continuous dividend payout, as well as seize opportunities for aggressive growth should they arise.”

Hannover Re, which carries an AA- credit rating with a stable outlook from Standard & Poor’s, increased its capital base, consisting of shareholders’ equity, non-controlling interests and hybrid capital, to 8.8 billion euros ($12.1 billion) in 2013 from 5.6 billion euros in 2009.

The reinsurer said last month it plans to maintain its payout to investors at 3 euros a share for 2013, or 40 percent of net income. Under Wallin’s predecessor, Wilhelm Zeller, it scrapped the dividend for 2008 following impairments on investments and catastrophe claims.

“Opportunities for mergers and acquisitions are limited at the moment as industry earnings are doing well and targets are therefore rather pricey,” Wallin said. “Regardless of our extremely strong capitalization, we are still able to meet our return on equity targets thanks to the good profitability of our business.”

Possible Buyback

Hannover Re last month reported record full-year net income of 895.5 million euros for 2013 and confirmed a profit target for this year of 850 million euros. Return on equity, a measure of profitability, stood at 15 percent at the end of last year, above the company’s minimum target of 9.8 percent.

“We might consider a share buyback if we would face problems meeting our return on equity targets because of too much capital,” Wallin said. “Naturally, our major shareholder Talanx prefers dividend payments to a share buyback.”

Talanx AG, Germany’s third-biggest insurer, owns 50.2 percent of the Hanover, Germany-based reinsurer.

Prices charged by reinsurers, which help primary insurers shoulder risks, “will probably remain under pressure at least this year and next until either a major catastrophe absorbs a lot of the industry’s excess capital or when underwriting earnings turn into losses,” Wallin said, adding that Hannover Re is confident regarding its profitability due to its “comparatively low fixed costs.”

Hannover Re’s shares rose 2.8 percent this year, compared with a 0.8 percent advance for the Bloomberg Europe 500 Insurance Index.

Munich Re, the world’s biggest reinsurer, said in February it will increase its dividend after fourth-quarter profit beat estimates on lower catastrophe-related costs. Swiss Re Ltd., the No. 2 reinsurer, also boosted its proposed payout for 2013 after fourth-quarter profit exceeded analysts’ estimates.

 

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