Hannover Re Hit by Q3 Cat Losses; 9-month Operating Profit Down 18.1 % to $527 Million

Germany’s Hannover Re – ranked by Standard & Poor’s as the world’s fifth largest reinsurer – announced third quarter earnings that were heavily impacted by the Florida hurricanes and Japanese typhoons.

Operating profit (EBIT) during the period fell 84.7 percent to 32.6 million euros ($42.2 million), compared to 213 million euros ($275 million) in the same period of 2003. For the first nine months of 2004 operating profit (EBIT) fell 18.1 percent to 408 million euros ($527 million), compared to 498.2 ($644 million) for the first 9 months of 2003.

Despite the decreases the company ‘s announcement was positive. The interim report, while acknowledging the “unusually high catastrophe loss expenditure in the third quarter,” nonetheless expressed Hannover Re’s “considerable satisfaction with its business performance over the first nine months.”

“The development of business in the third quarter was shaped by two extremes,” the bulletin continued: “on the one hand, Hannover Re benefited from the unchanged favorable conditions prevailing on the reinsurance markets; on the other hand, the result was overshadowed by an unparalleled major loss burden in the amount of 358.6 million euros [$463.6 million].”

Consolidated net income contracted by 25.5 percent to 191.1 million euros ($247 million), compared to 256.6 million euros ($331.8 million) in the three quarters of 2003. Earnings dropped by 35 percent to 1.58 euros ($204) per share, compared to 2.43 euros ($3.14) in the first nine months of 2003.

Wilhelm Zeller, chairman of the Executive Board stressed that “in view of the extraordinarily large burden of catastrophe losses we are highly satisfied with the result. The impact of the major losses was largely absorbed by the quality of our other business.”

Hannover said that the P/C reinsurance market continues to offer the company “attractive opportunities to write profitable business.” Zeller commented: “The market remains on a high level. In almost every segment we see good chances of writing profitable business.”

The company also pointed out that it was moving forward with its program to optimize its portfolio under its “More from less” initiative, which is aimed at “replacing high-volume, low-margin proportional business with profitable non-proportional business.” Gross premiums consequently declined by 21.1 percent to 3.2 billion euros ($4.137 billion) from 4 billion euros ($5.17 billion) in 2003. Hannover noted that the “premium decrease would have been 18.1 percent at constant exchange rates.”

Despite the increased claims, Hannover managed to retain a combined ratio in the first nine months of 97.1 percent, following 97.2 percent in the same period of the previous year. “This testifies to the further improvement in the quality of our property and casualty reinsurance portfolio. In every segment except natural catastrophe reinsurance our business performed superbly,” Zeller stressed.

While the company acknowledged that its profit forecast for the full financial year has been reduced, “owing to the strain of the severe windstorm events,” it nevertheless indicated that it is “highly satisfied with the development of its business. Its largest business group, property and casualty reinsurance, continues to show strong profitability.”

Zeller commented: “Despite the once-in-a-century burden resulting from the windstorm events in the USA and Asia, even our worldwide catastrophe portfolio will post a breakeven result for the year. In other words, the hurricane losses have simply cost us the earnings that we would have generated from this otherwise highly profitable business.”

The full report and accompanying financial figures are available on the company’s Web site at: http://www.hannover-re.com.