Hannover Re reported solid profits in the second quarter of 2005, earning 121.4 million euros ($150.6 million), a 6 percent gain, compared to the 114.6 million euros ($142.2 million) earned in the same period of 2004. The giant reinsurer’s consolidated net income for the first half of 2005 is 229 million euros ($284 million), an 8.3 percent gain over 2004.
The only dark spot in an otherwise rosy picture was a 24 percent decline in operating profits to 168.3 million euros ($208.8 million), well below analysts’ forecasts.
The company called the interim results “gratifying,” and also highlighted the following factors:
— Growth in net premiums + 6.2 percent
— Net income for the first half-year + 8.3 percent
— Stockholders’ equity + 12.3 percent
— Return on equity 16.9 percent
— All four business groups deliver positive profit contributions
— Combined ratio in property and casualty reinsurance 96.5 percent
The company’s bulletin said it “continued to make the most of the highly advantageous conditions in property and casualty reinsurance and expanded its market position” with all four business groups contributing. “With this performance we are on track to achieve our ambitious profit targets for the full year”, commented Wilhelm Zeller, Chairman of the Executive Board.
Hannover said the Group’s gross written premiums “grew by a modest 0.7 percent” to 4.8 billion euros ($5.95 billion). “Exchange-rate movements were no longer significant as at 30 June 2005, with a negative effect of just 2.7 percent. The level of retained premiums rose 6 percentage points to 82.5 percent, causing net premiums to climb 6.2 percent to 3.7 billion euros.”
In reference to the changes Hannover is implementing at Clarendon Insurance Group, its U.S. subsidiary, the bulletin pointedly referred to those operations as “specialty insurance, formerly known as program business.” It stressed that Clarendon’s “strategic reorientation” represented the “next step” of a process begun in 2002, and said the Group is “repositioning itself on the market.”
The announcement declared: “Henceforth the company will operate as a specialty insurer writing profitable niche business, such as non-standard automobile covers and fine arts policies.” Zeller explained that “Clarendon will discontinue its considerably more competitive routine business, such as householders’ and homeowners’ comprehensive, where it is up against the major players in the US primary market.”
Hannover acknowledged that this “will lead to an appreciable reduction in gross premium volume. In view of the envisaged increase in the retention to a level of 80 percent, however, the impact on net premiums will be at most marginal.”
Hannover’s report also noted that the second quarter of 2005 offered the company “further good opportunities to write profitable business. The treaty renewal season in Japan and Korea as at 1 April 2005 was used to enlarge the portfolio under favourable conditions.” Zeller stated: “Pricing discipline among the global reinsurance players is holding firm. In view of the very low level of interest rates, however, it is absolutely essential for reinsurers to focus on a solid underwriting policy.”
Zeller pointed to the “the development of our business groups in the year to date,” to reaffirm his confidence that Hannover will “substantially boost our profitability in the year under review.” That optimism was somewhat tempered by the usual caveat that it is “subject to the premise that major loss expenditure is in line with the multi-year average and provided there are no downward movements on capital markets.” If that doesn’t happen, Hannover Re expects net income in the order of 430 – 470 million euros ($533 to $583 million), “roughly 3.60 – 3.90 euros [$4.47 to $4.84] a share.”
The full report and additional comments and analysis are available on the Group’s Website at: http://www.hannovere.com.
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