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Clarendon posts top results

Hannover, 15 May 2000:

The Clarendon Insurance Group, New York, a wholly owned subsidiary of the Hannover Re Group, has increased both gross premium and profit by a double-figure percentage. Profits after tax grew to USD 34m, a huge improvement on the previous year's loss of USD 2.5m (which was, however, burdened by exceptional effects of the take-over). Nevertheless, even if these effects are discounted, pre-tax profit growth was up by more than 13% over last year.

Wilhelm Zeller, Chairman of the Executive Board of the Hannover Re Group, announced today that Clarendon has published an annual report for the first time since its take-over by Hannover Re as of January 1999. "It hasn't always been easy to explain to the public that expansion into US program business is highly profitable, Mr. Zeller stated. "This American niche business is relatively unknown and follows its own methodology. By the very nature of program business, Clarendon assumes hardly any insurance risk, Mr. Zeller adds. This is highlighted by the fact that 89% of Clarendon's gross premium income is passed on to its reinsurers, all of which are well known names. "Clarendon sees itself as the risk transfer facilitator between the specialised managing general agents and reinsurers looking to carry the risk, Ralph Milo, Chairman and CEO of Clarendon Insurance Group, explains. With licences to transact business in all 50 US states, a strong capital base and its good security ratings, Clarendon receives a fee for the service it provides. This is the main source of income for the company.

This explains why the current precarious state of the US property/casualty insurance market has had little impact on the result. Gross premiums rose from USD 1.26bn to USD 1.45bn, but net premiums dropped by USD 31m to USD 174m. Fee income, which is shown on the balance sheet as part of the underwriting result, has increased from USD 60.1m to USD 82.2m. This has resulted in a most satisfactory underwriting profit of USD 41.6m and a combined ratio of 75%. A pre-tax profit of USD 53m results after investment income is added and expenses are deducted. "This confirms not only that expansion into program business was the right thing to do, but also that, in Clarendon, Hannover Re has acquired one of the best program writers in the US market, Mr. Zeller says. Already in its first year, this investment produced a return of 11% before and 7% after tax and a return on equity of 20% before and 13% after tax.