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1996: New record year for Hannover Re

Hannover, 6 August 1997:

  • Increase of 6.7% in gross premium income;
  • investments + 20%;
  • investment result + 35%
  • profit after tax + 60%;
  • earnings per share + 10%;
  • gross dividend + 14%;
  • market capitalisation + 22%;

Hannover Re, the fifth-largest reinsurer in the world, reported new record results for the 1996 financial year. As stated by Wilhelm Zeller, Chairman of the Executive Board, at the press briefing on the annual results in Hannover, the Group's after-tax profit for the financial year recorded another year-on-year improvement to reach DM 108 million. This figure represents an increase of approximately 60 %. Totalling DM 226 million (1995: DM 116 million), the pre-tax profit was almost doubled. The return on equity therefore amounts to 47.4 % before tax (previous year: 18.8 %) and 22.7 % after-tax (previous year: 10.9 %). Earnings per share on the basis of DVFA/GDV are DM 6.06 (previous year: DM 5.50).

The accounts of Hannover Reinsurance Company show a pre-tax profit of DM 138 million and after tax DM 76 million. In accordance with the dividend policy established by Hannover Re last year, the entire after-tax profit is distributed to the shareholders. That portion, which would have been retained under a traditional dividend policy, will be clawed back by means of a subsequent capital increase. For 1996, a dividend of DM 3.15 per DM 5.00 share plus a corporation tax credit of DM 0.37 is to be proposed at the Annual General Meeting. In this way, shareholders will receive a 14 % higher gross dividend of DM 3.52 (previous year: DM 3.09). This means that Hannover Re continues to show one of the highest dividend yields of all listed German companies. Nevertheless, Zeller emphasized that the company's objective was to achieve annual growth in the gross dividend of 10 % until the total distribution amounted to DM 100 million - a target which is to be reached by the year 2000 at the latest.

Premium income increased against the industry trend

The gross premium income of the Hannover Re Group increased in 1996 by 6.7 % to DM 6.4 billion (1995: DM 6.0 billion); excluding exchange-rate fluctuations to the detriment of the D-Mark, growth would have been 2.7 %. The bulk of the premium growth (55 %) derived from life and health reinsurance, which was boosted for strategic reasons; this segment now accounts for 17.3 % (previous year: 11.9 %) of the total gross premium income. In regional terms, premium growth stemmed largely from North America (+ 27 %), Australia (+ 64 %) and the ASEAN countries (+ 38 %).

Technical result down due to investive expenditures

At a loss of DM 47 million (1995 result: DM 70 million profit), the technical result before management expenses showed a substantial deterioration in 1996. According to Mr. Zeller, this deterioration was largely attributable to a DM 140 million pre-financing measure in life and health reinsurance business. This measure was pure investment since, under German accounting rules, there are no deferred acquisition costs, but those have to be written off immediately. On the other hand, Mr. Zeller pointed out that the result in indemnity reinsurance had improved by DM 10 million to DM 106 million, despite further investment in financial reinsurance. He added that the 4.5 % increase in management expenses was lower than the rate of increase in the gross premium income, as a consequence of which the management expense ratio - already the lowest in the industry - had dropped to below 1.5 %.

Capital, reserves and technical provisions again substantially boosted

Another sizeable allocation of DM 191 million (previous year: DM 257 million) was made to the fluctuation reserve. Totalling DM 1.35 billion, this currently amounts to 27 % of net premium (the average value for German reinsurers being 11.5 %). DM 171.4 million were allocated to the IBNR reserve from the non-technical account. Overall, capital, reserves and technical provisions totalled DM 14.92 billion (DM 13.06 billion in 1995).

Excellent investment results

Due to the favourable capital market conditions, the investment result climbed by 35.2 % to DM 876.2 million (previous year: DM 648.0 million). Mr. Zeller reported that the main factors in this increase were the considerably higher ordinary investment income of DM 803 million (1995: DM 713 million), extraordinary investment income of DM 193 million (1995: DM 111 million), substantially lower depreciations for all Hannover Re Group companies (DM 87 million as against DM 116 million in the previous year) and only slight losses on the disposal of investments (DM 11 million as against DM 33 million in the previous year). Invested assets totalled DM 15.55 billion (previous year: DM 12.97 billion). Totalling DM 715 million (previous year: DM 613 million), the unrealised capital gains in the securities portfolio amounted to 7.2 % of the book values.

Good performance by the Hannover Re share

As Wilhelm Zeller went on to explain, in the wake of the more aggressive information campaign and pro-shareholder dividend policy launched in 1996, the intrinsic value of the Hannover Re share had finally been reflected in an adequate price. With an increase in the share price of more than 18 % in the 1996 financial year, the company's market capitalisation had risen to more than DM 2 billion. Despite this satisfactory performance, he added that it was not until this year that the share price had done justice to the company's intrinsic value. By 30th June 1997, the share price and hence the value of the company had increased by more than 70 % to over DM 3.5 billion. In Mr. Zeller's view, the solid balance sheet (almost no exposure to asbestos and pollution hazards), clearly focused strategic positioning of the Hannover Re Group in the world market, above-average return on equity and pro-shareholder dividend policy provided a sound basis for further increases in the share price. Mr. Zeller also announced that from October 1997, Hannover Re shares would be traded in the USA in form of American Depositary Receipts (ADRs).

Very favourable development in the first half of 1997

The Hannover Re Group expects that gross premium income will grow by around 3 % in the current financial year (this figure does not take into account the continued strong appreciation of major currencies against the D-mark). The favourable claims experience to date coupled with the reduced investments in life and health reinsurance should be conducive to a substantially improved technical result, assuming the claims experience remains stable. Wilhelm Zeller stated that the investment result in the first half of 1997 was even better than in 1996 due to the favourable market conditions. In this regard, he added that the unrealised gains in the securities portfolio had risen to over DM 1 billion. On the basis of this development, Zeller concluded that - given an unchanged claims experience and stable investment result - another double-digit increase in profits was to be anticipated in 1997.