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Winter storms pose no threat to 1999 profit target

Hannover, 28 January 2000:

Due to its anticyclical and strictly profit-oriented strategy in property and casualty reinsurance, Hannover Re's share of the reinsured losses caused by the winter storms "Lothar" and "Martin" at the end of last year will be less than the average. Taken together with the large number of other major loss events, these losses in 1999 will, however, surpass the record level of the previous year for Hannover Re's gross account. Nevertheless, based on the information currently available, the double-digit profit increase planned for the 1999 financial year has not been jeopardized. This was the main substance of a report presented by Wilhelm Zeller, Chairman of the Executive Board, at today's Supervisory Board Meeting.

Estimates put the insured losses from "Lothar" and "Martin" in the region of EUR 5 7 billion. Hannover Re's share will be substantially in excess of EUR 100 million gross and roughly EUR 40 million net (before taxes and fluctuation reserves). It should be noted that these are provisional figures, since the precise scale of the insured losses still cannot be reliably estimated. Approximately 50% of Hannover Re's losses derive from France, with the remainder attributable largely to Germany and to a lesser extent Switzerland.

As Mr. Zeller went on to explain, in addition to the winter storms a comparatively large number of other major loss events produced a heavy loss burden for Hannover Re. Gross losses of more than EUR 330 million surpassed even the exceptional year of 1998 (EUR 323 million). The most significant events were a hailstorm in Sydney, the earthquakes in Turkey, Greece and Taiwan, Hurricane "Floyd" in the United States, Typhoon "Bart" in Japan as well as the loss of two satellites in April and May and the crash of an Egypt Air passenger jet off the east coast of the USA. The net burden (after retrocession) from these major losses is expected to be in the order of EUR 160 million, a figure which is more than EUR 100 million higher than in the previous year. Despite reaching a new record level, this amount will be offset by favourable profit contributions from other business segments as well as from increased investment earnings. On the basis of the information currently available, the planned increase in the profit for the financial year is not under any threat.

Mr. Zeller noted with particular pride the market-oriented approach taken by his underwriters. Given the steady deterioration in market conditions, their implementation of the strategic principle of anticyclical underwriting in property and casualty reinsurance has been exemplary. It is entirely thanks to their conduct that both the gross and net participations of Hannover Re in such major losses are considerably lower than the company's market share would have entailed just three years ago.

Mr. Zeller further pointed to the fact that in recent years Hannover Re has systematically pressed ahead with the strategic diversification of its reinsurance portfolio. Property and casualty business highly profitable in attractive market phases yet also extremely volatile and cyclical last year accounted for less than 40% of gross premium income. Life and health reinsurance and financial reinsurance, in particular, as well as the newly acquired program business of the Clarendon Insurance Group, New York, all promise favourable profits. Investment results have also recorded further gains. This is the key to ensuring that sustained overall profit growth is attainable, even during phases when the property and casualty reinsurance segment is underperforming.