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1997: Third record year in succession

Hannover, 5 August 1998:

The 1997 financial year saw Hannover Re post record results for the third year in succession. This was confirmed in a statement by Wilhelm Zeller, Chairman of the Executive Board, at the press briefing on the annual results which took place in Hannover. He reported that the Hannover Re Group had achieved a further increase in its net profit for the year, which climbed to 113.9 million DM from 108.2 million DM in the previous year. Adjusted to allow for minority interests, the Group net profit for the financial year had increased by 13.4 % to 95.7 million DM. The return on equity amounted to 24.8 % before tax and 15.9 % after tax. The DVFA/GDV earnings per share stood at 6.80 DM (previous year: 6.06 DM), again corresponding to double-digit growth. This was equally true of the parent company's net profit for the financial year, which climbed by 10.2 % to DM 83.4 million. Mr. Zeller added that it was thus also possible to increase the dividend for the fifth year in succession.

Sharp rise in premium income despite a difficult market climate

The Group's gross premium income rose by 21.0 % in 1997 to 7.7 billion DM. Discussing the key sources of this growth, Mr. Zeller alluded to the strategically prioritized business segments of life and health reinsurance (growth of 75.3 %) and financial reinsurance (growth of 15.5 %). With a volume of 1.9 billion DM (previous year: 1.1 DM billion), life and health reinsurance thus accounted for more than 25 % of the total portfolio. Mr. Zeller added that the acquisition of selected portfolios of Skandia International Insurance Corporation, Stockholm, in September of the previous year had been a decisive factor in the premium growth, with around 565 million DM being attributable to this transaction. He explained that the strength of major foreign currencies against the German mark had also impacted favourably upon premium growth, accounting for approximately 6 % of the total increase.

As in the previous year, the claims experience was exceptionally favourable in the 1997 financial year. Mr. Zeller observed that the losses from natural catastrophes had again dropped sharply in the year under review. He explained that this development was due, on the one hand, to the substantially reduced loss frequency and, on the other hand, to the absence of very expensive losses. This positive trend had, however, further intensified competition in property and casualty reinsurance, as a result of which there was only slight growth in this segment.

The principal regional growth markets were North America and the United Kingdom, together with non-domestic markets in Continental Europe. With a higher retention rate of 83.8 % (previous year: 78.9 %), net premiums showed a disproportionately large increase of 28.5 % to 6.5 billion DM.

Deterioration in the underwriting result due to investments

Mr. Zeller reported that the underwriting result had deteriorated by 103 million DM. However, this figure included commission and similar charges of 185 million DM paid as a result of the Skandia acquisition. Additional investment expenditure was incurred for the further expansion of life and health reinsurance business. In real terms, therefore, he explained that the underwriting result had improved markedly, adding that the favourable claims experience had been a decisive factor in this regard.

Reserves and technical provisions again boosted appreciably

Mr. Zeller stated that a very sizeable amount of 231.7 million DM had been allocated to the equalization reserve, which now stood at 1.58 billion DM. The IBNR reserves had been boosted by an allocation of 292.3 million DM from the non-technical account. The total capital, reserves and technical provisions thus amounted to 17.7 billion DM , an increase of 18.7 % compared to the previous year.

Investment result again outstanding

Due to the generally favourable movements on the international capital markets - following the excellent development of the preceding year -, another record result was achieved, breaking through the 1 billion DM barrier for the first time. Mr. Zeller asserted that the investment result of 1,085.7 million DM corresponded to an increase of 23.9 % over the previous year. Total investments increased by 20.4 % to 18.7 billion DM. Unrealized gains in the investments stood at 1.5 billion DM representing 10.2 % of book values.

Profitable year for shareholders too

In accordance with its investor friendly dividend policy, the company will again be distributing the entire net profit of the parent company (83.4 million DM) to its shareholders. In this way, the dividend can be increased for the fifth year in a row. With a gross distribution of 94.9 million DM (including the corporation tax credit), Mr. Zeller affirmed that the company was already very close to achieving the objective made public two years ago of distributing a gross dividend of 100 million DM by the year 2000 at the latest.

Bright outlook for 1998

Against the backdrop of fierce competition and the resulting sharp deterioration in rates and conditions, Mr. Zeller expressed the view that the business volume in the strategic segment of property and casualty reinsurance would probably show little if any growth in the years to come. Indeed, it may even decline in the highly developed markets of North America and Western Europe. The claims experience for the first half-year is still regarded as satisfactory, even though the burden of nine major losses costing almost DM 200 million in gross terms is already higher than the comparative figure for the previous year as a whole. The largest single loss in this connection was the ice storm in Eastern Canada in January of this year, which may cost the company up to 60 million DM. The ICE train accident in Eschede, Germany, two major fire losses in Germany and a plane crash on 16 February in Taiwan will also impose a not insignificant burden on the accounts. However, the Group will retain for net account an amount below 40 million DM from all these above losses.

Financial reinsurance, a segment in which the company has already assumed a pioneering role, continues to offer good growth prospects. Under the newly established brand name Hannover Re Advanced Solutions, these activities have been concentrated on the International Financial Services Centre in Dublin.

In the international life and health reinsurance segment, too, Hannover Re is again set to increase its business volume by a substantial double-digit margin. In order to finance the sustained vigorous growth recorded for a number of years now - the premium volume has more than tripled in the past four years -, by means of an innovative transaction effected in April 1998 Hannover Re successfully transferred to the capital market the acquisition costs which are prefinanced in connection with life reinsurance treaties. Mr. Zeller stated that from 1999 onwards the returns on the high investments of previous years could be expected to contribute to a substantial improvement in results.

All in all, the Group anticipates double-figure organic growth in premium income to a level of around 8.8 billion DM. In view of the fact that the favourable developments on the capital markets have so far continued, Mr. Zeller concluded that the goal of attaining further double-digit growth in the net profit, earnings per share and dividend distribution was safely within reach - unless there were to be a considerable deterioration in the loss development (natural catastrophes and/or other major losses) or on the capital markets in the remaining months of the year.

In addition, Mr. Zeller announced that a reconciled version of the 1997 Group accounts in line with US GAAP would be published at the Annual General Meeting on 25 September 1998. Hannover Re is thus taking another major step forwards in its open and investor-friendly policy of information management. Moreover, he pointed out that the results under US GAAP would probably be markedly higher.