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1998: Fourth record year in succession

Hannover, 22 June 1999:

  • Gross premium income + 10.6 %;
  • Life and health reinsurance + 39.7 %;
  • Financial reinsurance + 38.8 %;
  • Investment result + 12.7 %;
  • Group profit for the financial year + 7.8 %;
  • Record allocation to the fluctuation reserve;
  • Earnings per share + 12.9 %;
  • Return on equity 27.7 % before tax and 15.4 % after tax;
  • Sixth consecutive dividend increase;
  • Long-term dividend target achieved ahead of schedule;
  • Successful diversification;

The Hannover Re Group achieved its fourth record result in succession for the 1998 financial year. The news was announced by Wilhelm Zeller, Chairman of the Executive Board, at a press briefing on the annual results held in Hannover. The profit for the financial year of the parent company Hannover Re, and hence the basis for the company's dividend payment, again increased by a double-digit margin, namely 12.0 %, to DM 93 million. At DM 103 million (+ 7.8 %), the Group profit for the financial year surpassed the DM 100 million threshold for the first time. The return on equity amounted to 27.7 % before tax and 15.4 % after tax. The earnings per share calculated in accordance with the revised DVFA rules totalled DM 6.92 (+ 12.9 %). This corresponded to an amount of DM 7.50 (+ 10.4 %) according to the method used previously, and in both cases the goal of a double-digit growth rate was thus accomplished.

Sharp rise in premium income despite difficult market conditions

In 1998, the gross premium income of the Hannover Re Group increased by a substantial 10.6 % to DM 8.6 billion (1997: DM 7.7 billion). Looking at the growth in business volume in the original currencies it even amounted to around 15 %. This growth was attributable exclusively to life and health reinsurance (+ 39.7 %) and financial reinsurance (+ 38.8 %).

Property and casualty reinsurance continued to suffer enormous pressure on premium rates coupled with considerable overcapacity, as a consequence of which gross premium income in this segment was reduced by 3.2 %.

Technical result adversely affected by natural catastrophes

The technical result was particularly affected by an increase in losses caused by natural catastrophes and other major loss events. Compared to the previous year, gross losses from such events more than tripled. In this regard, three natural catastrophes (the Ice-storm in Canada as well as Hurricanes Georges and Mitch) burdened the gross account in the region of approximately DM 300 million. Space reinsurance was hit by five total satellite losses, producing a record burden of more than DM 150 million in gross terms. Three major losses in aviation reinsurance cost in excess of DM 100 million. In addition, a number of major fire claims and the losses connected with the ICE railway accident near Eschede imposed a total strain of almost DM 100 million. Mr. Zeller explained that although the company's own retrocessions had appreciably reduced these losses, the net expenditure attributable to major loss events had still more than doubled.

The situation in life and health reinsurance was very different. Growth again outstripped expectations, thereby delaying attainment of the breakeven point in this segment. However, in the light of the Group's strategic growth targets in this segment, Mr. Zeller stressed that this development was by no means unwelcome. Despite the growth-related expenditure, the technical result in life and health reinsurance improved by DM 141 million to -DM 106 million. Overall, the technical result deteriorated by just under DM 11 million to -DM 215 million.

Further impressive strengthening of total capital, reserves and technical provisions

With an allocation of DM 276.4 million (1997: DM 231.7 million), the fluctuation reserve was considerably strengthened and reached DM 1.9 billion in the year under review. Mr. Zeller emphasized that this constituted the largest-ever contribution to this reserve. The amount of DM 266 million was allocated to the IBNR reserve from the non-technical account. The total capital, reserves and technical provisions thus rose steeply to DM 19.4 billion (1997: DM 17.7 billion).

Another outstanding investment result

The Hannover Re Group profited from the generally favorable state of the capital markets. The investment income rose by 12.7 % to DM 1.2 billion. In addition to the considerable increase of 8.3 % in ordinary earnings, profits on disposals grew by 50.0 % to DM 337 million, thereby also boosting the result. The total portfolio of investments increased to DM 19.3 billion (1997: DM 18.7 billion).

Dividend again increased by a double-digit margin

In accordance with the shareholder-friendly dividend policy established three years ago, the entire profit for the financial year of the parent company will again be distributed to its owners. Mr. Zeller commented that it would thus be possible to increase the dividend for the sixth consecutive year. With a gross distribution (including corporate tax credit) of DM 104 million, the stated objective of generating a gross dividend of DM 100 million by the year 2000 had thereby been accomplished ahead of schedule. It will be proposed to the Annual General Meeting that a gross dividend of DM 4.26 per paid-up no-par value share be distributed. On the basis of the current share price, this produces a dividend yield of 3.0 % - a figure which can certainly rival the current yields on a number of types of fixed-income investments.

Favorable forecast for 1999

The current financial year is again marked by a deterioration in market conditions in property and casualty reinsurance. For this reason, Mr. Zeller stressed that the company would continue to adhere to a selective and strictly profit-oriented underwriting policy in this segment and would, if necessary, accept a further reduction in its business volume. Life and health reinsurance still holds the promise of substantial growth opportunities worldwide, and another double-digit growth rate can therefore be anticipated. In financial reinsurance, too, significant double-digit growth rates can again be expected.

Owing to the initial consolidation of Clarendon Insurance Group, New York, which was acquired with effect from 1 January 1999, a premium income of around DM 12 billion is anticipated for the current financial year. As a leading writer of so-called program business, Clarendon brings to the Hannover Re Group an extremely lucrative and profitable type of business. In future, this segment will account for more than 20 % of gross premiums, which means that from 1999 onwards the highly competitive, cyclical and volatile property and casualty segment will constitute less than half of the Group's total premium income.

The expansion of the strategic segments of life/health reinsurance, financial reinsurance and program business marks a continuation of the already initiated diversification of the Hannover Re Group's earnings power. In addition, Mr. Zeller emphasized that a selective, profit-oriented underwriting policy in property and casualty reinsurance was intended to ensure that Hannover Re's ambitious profit targets could again be met in 1999. While the result before tax and goodwill amortization is certainly expected to grow by a good 25 %, it is currently too early to forecast the scale of the after-tax profit. This will only be possible once the implementing regulations for tax reform in Germany have emerged.