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Hannover Re Group in 1999

Successful diversification ensures overall growth and favourable earnings prospects


Hannover, 22 April 1999:

At a press conference in Frankfurt the Chairman of the Executive Board of Hannover Re, Wilhelm Zeller, reported on the insights gained from the so-called renewal season, i.e. the annual treaty negotiations between reinsurers and their clients.

Due to the emerging trends in the (re-)insurance markets, Hannover Re expects to be able to increase its premium income to approximately DM 12 billion (1998 premium income was approx. DM 8.6 billion). Mr. Zeller cited the expansion of life and health business and financial reinsurance as well as the acquisition of Clarendon Insurance Group, New York, as key influencing factors in this regard. He observed that this acquisition had made it possible to expand the attractive sector of US program business into an independent segment. Mr. Zeller noted that the strategic diversification of Hannover Re's portfolio would reduce the proportion of property and casualty reinsurance a highly competitive, cyclical and volatile segment to approximately 42% (1998: 68%) in the current year. He affirmed that the expansion of the other strategic segments and the selective, profit-oriented underwriting policy in property and casualty reinsurance should enable Hannover Re to accomplish its ambitious profit targets for 1999. The profit for the year and the earnings per share are both expected to record further double-digit growth in the current year, provided there are no extraordinary and hence unforeseeable major loss events or turbulence in the capital markets.

According to Mr. Zeller, the decline in property and casualty reinsurance has yet to reach its lowest point. The years 1994 to 1997 produced relatively light losses, a consequence of which is that these lines of business are still marked by considerable overcapacity. Especially, the prevailing level of competition in emerging markets (such as Latin America and Eastern Europe) has been particularly difficult to understand. Although a few individual segments of property and casualty reinsurance showed indications of an improvement in terms and conditions, the overall premium level has continued to deteriorate. Consequently, Hannover Re has planned no premium growth for this segment in 1999.

By contrast, Mr. Zeller emphasized that life and health reinsurance showed the greatest growth rates worldwide and continued to offer good prospects for further development. For this reason, the company has set itself very ambitious objectives for the expansion of life reinsurance business. In the area of financing reinsurance it has built up a multifaceted range of specialist expertise. In addition to the acceptance of insurance risks, the primary focus here is the prefinancing of high initial acquisition costs incurred in building a life insurance portfolio. By transferring the acquisition costs from the life and health insurance sector to the capital market by a securitization transaction, it is possible to generate capacity for almost unlimited growth (cf. NewsLetter dated 16 April 1998). Furthermore, new products are being developed in co-operation with primary insurers for life and health reinsurance, the successful launch of which will lead to the creation of a corresponding demand for reinsurance.

Overall, life and health reinsurance will post further substantial growth in 1999 and decisively break through the DM 3 billion barrier for the first time. A crucial factor in this growth will be Hannover Re's US subsidiary, Reassurance Company of Hannover, particularly in the area of health reinsurance. This subsidiary had succeeded in applying for the first time the principle of so-called block assumption transactions, i.e. the transfer of entire portfolios, not only to life reinsurance but also to health reinsurance business.

The strategic segment of financial reinsurance is expected to record further vigorous growth in 1999. Mr. Zeller stated that Hannover Re had successfully concentrated its worldwide activities at its Irish subsidiaries in Dublin. In the 1999 financial year it is anticipated that the growth target of at least 15% will again be achieved. Unlike property and casualty reinsurance, there is no real "renewal season" in this business segment. Financial reinsurance treaties, which are frequently based upon multiyear agreements, are individually tailored to the needs of specific clients. Hannover Re has been successful in transferring existing coverage concepts developed for a particular market (such as the USA) to other regions. This was particularly true of Australia and South Africa. In Australia, Hannover Re played a major role in designing the largest financial reinsurance treaty concluded in the country to date, and it leads the programme with a share in excess of 50%.

Program business is Hannover Re's fourth strategic business segment. It constitutes a rapidly growing and profitable sector. As set out in a report published by the US rating agency A.M. Best, over the last five years all key parameters of program business had outperformed those of the traditional property and casualty reinsurance classes.

Clarendon Insurance Group is expected to increase its premium income from USD 1.2 billion to approximately USD 1.5 billion, thereby contributing to the substantial premium growth of the Hannover Re Group as a whole.