Hannover Re Estimates Katrina Losses at $314 Million; Lowers 2005 Forecast

Germany’s Hannover Re has issued a statement indicating that it will be “heavily impacted by Hurricane ‘Katrina.'” It estimates net losses before tax at around $250 million euros ($314 million), but indicated that it still expects “Return on equity after tax will remain in double digits.”

The company acknowledged that Katrina could become the “most expensive ever natural disaster suffered by insurers in industry history,” as “estimates of the total insured losses currently amount up to $30 billion.”

Hannover Re also noted that “the financial year had already witnessed an above-average intensity of major claims prior to Hurricane ‘Katrina.’ As has been explained on previous occasions, Hannover Re bases its profit expectation on a number of factors – including projected major loss expenditure in the order of 6 percent of net premiums earned in property and casualty reinsurance; this figure reflects the multi-year average burden of major losses.

“As at 30 June 2005 actual expenditure on major losses – at 112.3 million euros ($140.8 million) or 6.1 percent of net premiums – was still roughly on a par with this level. The third quarter then saw numerous additional major loss events: Hurricane “Dennis” in the United States, damage to an oil platform in the Indian Ocean, several aviation claims, flooding in Mumbai, India, and most recently the floods in German-speaking parts of the Alpine region. All in all, the major loss expenditure incurred to date in 2005 is nearly 500 million euros [$627 million]. The proportion of major losses relative to the total net premiums that the company expects to earn in the financial year is consequently already at least double the multi-year average.”

As a result Hannover Re has lowered its 2005 forecasts. It now expects earnings to be around $309.1 million euros ($387.8 million), about the same as last year, rather than the 430 million to 470 million euros ($540 to $715 million) it had earlier forecast. The new estimate, however, is conditioned on there being no further “major losses-” which, as the year still has four months to go, is a very big “if.”

CEO Wilhelm Zeller stressed that, “in view of the extraordinarily heavy burden of losses this is a very good performance.” He also noted that the rest of Hannover Re’s portfolio continues to perform very well.

“It is our assumption that ‘Katrina’ – just like last year’s hurricanes – will have further favorable implications for the treaty negotiations as at 1 January 2006 and we expect to see additional significant hardening of prices and conditions in natural catastrophe and marine reinsurance”, Zeller observed.