Hannover Re satisfied with 1 January treaty renewals in non-life reinsurance

• Premium volume virtually stable despite incipient market softening
• Focus on selective underwriting and cycle management
• Market share boosted in Germany and credit & surety business
• US property business largely stable with moderate rate reductions
• Worldwide catastrophe business still highly profitable
• Return on equity target for 2008: at least 15%

Hannover, 5 February 2008:

This year's treaty renewals in non-life reinsurance passed off satisfactorily for Hannover Re. "Despite discernible softening tendencies in the market the rate reductions were largely smaller than anticipated. We are pleased to report that we secured prices and conditions commensurate with the risks", Chief Executive Officer Wilhelm Zeller asserted. More appreciable premium reductions in some areas were almost offset by increases on the German market and in worldwide credit/surety reinsurance. Assuming constant exchange rates, the premium volume in non-life reinsurance will therefore remain stable.

Hannover Re's outstanding ratings ("AA-" from Standard & Poor's and "A" from A.M. Best) again had a favourable effect on the outcome of the renewals. They are an essential prerequisite, particularly when it comes to writing business that is highly sensitive to credit status. Since Hannover Re is one of the few reinsurers to satisfy this standard without reservations, it enjoys worldwide access to all lines and segments and is in a position to profit disproportionately strongly from attractive business opportunities.

Of the total premium volume written in the 2007 underwriting year in traditional non-life reinsurance – i.e. excluding structured covers – amounting to EUR 3,608 million, more than two-thirds of the treaties worth altogether EUR 2,634 million (73%) were up for renewal as at 1 January 2008. Of this, treaties accounting for EUR 2,020 million were renewed, while a volume of EUR 613 million was either cancelled or restructured.

Including increases of EUR 605 million from new or restructured treaties and thanks to improved prices in some areas, the total renewed premium volume thus stood at EUR 2,625 million. Making allowance for treaties with a later renewal date, gross premium in non-life reinsurance is likely to come in virtually on a par with the previous year at EUR 3,540 million.

The development of business in Germany was most gratifying: property business in this market grew by a vigorous 21%. "Thanks to new client relationships and increased treaty shares under existing accounts we were able to further enlarge our already high market share and thus extend our position as one of the leading reinsurers in the profitable German market", Mr. Zeller asserted. As anticipated, business with catastrophe covers developed favourably following the heavy losses caused by winter storm "Kyrill" last year. Rates in this segment climbed by as much as 15%.

Worldwide credit & surety reinsurance is another lucrative line of business for Hannover Re. "Although rates and conditions came under modest pressure due to the good results in 2007, we consolidated our market position as ceding companies raised their retentions and selectively enlarged our portfolio", Mr. Zeller emphasised. Premium growth here amounted to 5%.

In US property business, the rate level outside catastrophe covers remained broadly stable, with only modest price declines. The absence of major losses in property catastrophe business, on the other hand, was reflected in rate reductions averaging 9%; the minimum margins, however, were still comfortably exceeded in this business. Original rates in US casualty business have already been falling for some time, and now the reinsurance market is softening appreciably. Reinsurance terms and conditions were nevertheless still acceptable. Workers' compensation business saw sharp rate reductions, although here, too, business is still attractive overall. Even in the area of directors' and officers' (D&O) covers, where consistently declining rates are the hallmark of the original market, the reinsurance market remained broadly stable.

As a consequence of the absence of major losses in both 2006 and 2007, rates in marine business decreased. With this in mind, we substantially scaled back our exposure in natural-catastrophe-exposed regions such as the Gulf of Mexico. Premium in this segment consequently contracted by 9%. In aviation business, where Hannover Re ranks among the global market leaders, the premium level remained stable.

Risk management

Hannover Re's risk management activities remain focused on conserving its capital. "In addition to traditional retrocessions, we continue to make use of risk transfers to the capital market. As at 1 January 2008, we thus boosted the total volume of our capital market transactions by USD 100 million to USD 1.123 billion", Mr. Zeller explained. Hannover Re responded to the growing interest in such transactions by setting up a dedicated department for "Insurance-Linked Securities" (ILS) effective 1 January 2008. It is to take on the role of transformer and aggregator for primary insurers by designing appropriate transactions for the capital market. Not only that, the department is also active as an ILS investor.

Outlook for 2008

For the year's remaining renewal phases (1 April primarily in Japan and South Korea, 1 June/July: second-most important renewal date in the United States and 1 October) the adequate market conditions still prevailing in non-life reinsurance should be sustained. The company will respond to moderate softening tendencies in the market with selective underwriting and cycle management as well as with regrouping measures within the portfolio.

In light of the satisfactory treaty renewals as at 1 January Hannover Re anticipates a good 2008 financial year. "We expect an increase of around 5% in premium income for our total portfolio, with prices remaining adequate. Our focus remains firmly fixed on profitability rather than rankings and market shares", Mr. Zeller affirmed. Assuming that the burden of major losses is in line with expectations and provided there are no downturns on capital markets, another good result should be attainable in the current year: Hannover Re therefore anticipates a return on equity of at least 15%. As for the dividend, the company is aiming for an unchanged distribution of 35% to 40%.