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DJ HUGIN NEWS/Hannover Re: Capital market crisis and above-average volume of catastrophe losses dominant factors in the result as at 30 September 2008

Capital market crisis and above-average volume of catastrophe losses
dominant factors in the result as at 30 September 2008 

*         Operating profit (EBIT) 32.5 million euro
*         Group net income -142.8 million euro
*         Catastrophe losses 444.9 million euro
*         Stable ordinary investment income, but write-downs of
  432.6 million euro on securities
*         Capital base remains solid
*         Good business prospects for 2009 

Hannover, 5 November 2008: As already announced by Hannover Re on  21
October 2008, the  further worsening of  the crisis on  international
financial  markets  as  well  as  a  higher-than-average  burden   of
catastrophe losses have  taken an appreciable  toll on the  company's
result. Despite  its conservative  investment strategy,  Hannover  Re
again had to  take significant write-downs  - particularly on  equity
holdings - in the third quarter. "Our core business developed in line
with expectations. Unfortunately, as a major institutional  investor,
we were unable to escape  the turmoil on capital markets  unscathed",
Chief Executive Officer Wilhelm Zeller explained. 

That  Hannover  Re's  long-term  financial  strength  remains  robust
despite the significant drop in profits in the third quarter is  also
reinforced by Standard  & Poor's,  which confirmed  its "AA-"  rating
with a stable outlook at the end of October. 

The operating profit (EBIT)  as at 30 September 2008 contracted  from
678.3 million euro  to 32.5 million  euro.  Group net  income  turned
negative  to   -142.8 million  euro,   compared  to   a  surplus   of
577.3 million euro in the comparable period of the previous year.  In
this context it  should be borne  in mind that  the third quarter  of
2007 had been influenced by a positive special effect in the order of
180 million euro associated with the German corporate tax reform. The
result as at  30 September 2008  was also adversely  impacted by  the
fact that losses on equities are not tax-deductible in Germany, as  a
consequence of which  a tax load  in excess of  100 million euro  was
incurred despite  posting a  pre-tax  deficit. This  performance  was
equivalent to earnings of -1.18 euro (4.79 euro) a share. 

Shareholders' equity totalled 2.6 billion euro, a decline compared to
the level as  at 31 December 2007  (3.3 billion euro).  A key  factor
here - along with the repercussions of the financial crisis - was the
dividend payment for  2007 amounting  to 277 million  euro. The  book
value per  share stood  at 21.67  euro. The  policyholders'  surplus,
comprised of  shareholders'  equity, minority  interests  and  hybrid
capital, totalled 4.5 billion euro. 

On account of the withdrawal from specialty business and the downward
slide in exchange  rates in  the first half-year,  the gross  written
premium booked by the Hannover Re  Group contracted by 5.0% as at  30
September 2008 to  6.1 billion euro (6.4 billion  euro). At  constant
exchange rates the decline  in gross premium  volume would have  been
1.3%. The  level of  retained  premium rose  to  88.8% (86.4%)  as  a
consequence of appreciable savings on the costs of the company's  own
protection covers  as  well  as reduced  proportional  cessions;  net
premium earned fell by 6.0% to 5.2 billion euro (5.5 billion euro). 

The development of  non-life reinsurance  business was  satisfactory.
Although softening  tendencies  were  still  evident  on  some  major
markets, conditions were broadly acceptable overall. In most cases it
was possible to obtain prices  commensurate with the risks. "We  have
scaled back  business  that  no longer  satisfied  our  profitability
requirements  and  reshuffled  our  portfolio  in  favour  of   other
segments. These include German business,  the markets of Central  and
Eastern Europe  and  agricultural  covers worldwide,  an  area  where
demand is  growing",  Mr.  Zeller noted.  The  company  also  remains
actively involved  in reinsurance  business transacted  according  to
Islamic  principles,   which   is   successfully   written   by   the
Bahrain-based subsidiary Hannover ReTakaful. 

Gross premium for total non-life reinsurance as at 30 September  2008
contracted  by  7.6%  year-on-year  to  stand  at  3.8  billion  euro
(4.1 billion euro). The withdrawal  from specialty business and  weak
exchange rates were  key factors  in the reduced  premium volume.  At
constant exchange  rates,  especially  against  the  US  dollar,  the
decline would have been 1.7%. The level of retained premium rose from
83.9% to 88.4%. Net premium earned  fell by 8.5% to 3.1 billion  euro
(3.4 billion euro). 

The third quarter was particularly heavily influenced by the  effects
of hurricane "Ike", which caused an insured market loss put at 15  to
20 billion US dollars. The resulting net strain for Hannover Re is in
the region  of  220 million  euro,  while  the  loss  from  hurricane
"Gustav"  is  around  30 million  euro.  Additional  expenditure  was
incurred inter alia from  two hailstorms in the  summer in Germany  -
which cost altogether 64.3 million euro -, as a consequence of  which
the total burden of catastrophe losses and major claims for the first
nine months  came to  444.9 million euro  (259.2 million euro).  This
figure is equivalent to 14.3% of net premium in non-life  reinsurance
and hence considerably higher than the calculated expectancy of  10%.
The combined ratio thus stood at 103.6% (100.9%). 

The underwriting result  in non-life  reinsurance therefore  declined
from -50.3 million euro in the comparable period of the previous year
to -131.2 million euro. The operating result (EBIT) fell to
-86.0 million  euro  (442.2 million  euro)  owing  to  sharply  lower
investment income.  Group  net  income  contracted  substantially  to
-178.0 million euro (382.9 million euro),  equivalent to earnings  of
-1.48 euro (3.17 euro) a share. 

The underwriting  experience  in  the  life  and  health  reinsurance
business group was satisfactory as at 30 September 2008, although the
premium volume fell short  of expectations, not  least on account  of
the restraining effects  of exchange rate  movements - especially  in
the first half of the year. Premium income similarly declined in  the
area of  UK life  insurance policies  taken out  in conjunction  with
mortgage loans.  "In  the  medium  term, however,  we  stand  by  our
ambitious goal  of generating  double-digit  growth rates  since  the
demographic trend in industrial nations  as well the expanding  urban
middle class  in  threshold markets  offer  a good  basis  for  solid
growth", Mr. Zeller emphasised. 

Hannover Re, which operates in this business group under the Hannover
Life Re brand, is  optimally positioned in its  largest market -  the
United Kingdom - with its orientation towards enhanced annuities.  In
this subsegment, as with the  reinsurance of existing pension  funds,
the company  sees  very  good opportunities  for  further  profitable
expansion. 

Gross premium in  life and  health reinsurance declined  by a  modest
0.8% as at 30 September  2008 to 2.3 billion euro (2.3 billion  euro)
due to  the  restraining  effects  of  exchange  rate  movements.  At
constant exchange rates growth of 6.1% would have been recorded.  The
level of retained premium decreased marginally to 89.3% (90.5%).  Net
premium earned fell by 2.0% to 2.1 billion euro (2.1 billion euro). 

The  appreciable  drop  in  the  operating  profit  (EBIT)  -   which
contracted by 55.4%  as at  30 September  2008 to  93.2 million  euro
(208.9 million euro) - can be attributed principally to non-recurring
positive special effects  in the  same period of  the previous  year,
which resulted  from the  release  of reserves  that were  no  longer
necessary, as  well as  to  the required  fair value  measurement  of
assets deposited with clients. 

The EBIT margin of 4.5% fell short of the target corridor of 6.5%  to
7.5%. On  account of  the factors  discussed above  Group net  income
contracted by 69.7% to 61.4  million euro (202.6 million euro);  this
corresponds to earnings of 51 cents (1.68 euro) a share. 

The  performance  of  Hannover   Re's  investment  portfolio  as   at
30 September 2008  was  overshadowed  by  the  increasingly  dramatic
upheavals on  international capital  markets, especially  the  abrupt
slump  in  equity  prices.  The  inflow  of  cash  from  underwriting
nevertheless  more  than  made  up  for  the  price  declines,  as  a
consequence of which  the portfolio  of assets  under own  management
improved on the position as at 31 December 2007 to reach 19.9 billion
euro (19.8 billion  euro).  Ordinary  income  excluding  interest  on
deposits  remained   virtually   unchanged  at   627.5 million   euro
(635.3 million euro), a  testament to  the fact that  Hannover Re  is
correct in pursuing an investment policy geared to generating  stable
ordinary income. Although movements on bond markets led to a decrease
in  unrealised  losses   in  the   available-for-sale  portfolio   of
fixed-income securities in  the third quarter  relative to the  first
half-year, unrealised  losses of  283.9 million euro  (103.4  million
euro) still remained. Unrealised gains in the equity portfolio  stood
at 7.3 million euro (191.0 million euro) as at 30 September 2008. The
bulk   of   the   realised   gains   totalling   204.3 million   euro
(164.3 million  euro)  resulted  from  the  tactical  shortening   of
durations in  the US  dollar  portfolio in  the first  quarter.  This
contrasted with realised losses  of 127.2 million euro  (60.1 million
euro). 

Investment  income  was  adversely  impacted  by  the  need  to  take
considerable  write-downs   on   equities   of   355.3 million   euro
(8.4 million euro); the hedges put in  place in the first quarter  on
roughly a fifth  of the  portfolio nevertheless  prevented even  more
extensive value adjustments.  Write-downs on fixed-income  securities
amounted to  77.3 million  euro. Net  income from  total  investments

(MORE TO FOLLOW) Dow Jones Newswires

November 05, 2008 01:31 ET (06:31 GMT)

DJ HUGIN NEWS/Hannover Re: Capital market crisis and -2-

consequently   deteriorated   by   56.7%   to   370.4 million    euro
(855.5 million euro). 

Outlook
While the treaty renewals that took place as recently as July in the
United States had pointed to a softening market in non-life
reinsurance, Hannover Re anticipates a trend reversal in view of the
present crisis on financial markets. Looking ahead to further
developments in non-life reinsurance, Hannover Re is optimistic. "In
light of the capital depletion triggered by the financial market
crisis - which has also made itself felt throughout the insurance
industry - we expect to see stronger demand for reinsurance and hence
hardening of the markets", Mr. Zeller explained. This will lead to
rate increases - which will be substantial in some areas - and the
outcome of the 2009 renewals is therefore expected to be favourable.
The October gatherings of reinsurers and their clients held every
year in Baden-Baden and the United States also demonstrated that a
trend reversal is on the horizon. Hannover Re is very well placed to
profit from these developments. 

For the full 2008 financial year  the net premium volume in  non-life
reinsurance is likely to be curtailed by movements in exchange  rates
and should therefore contract slightly. 

Hannover Re's assessment of its business prospects in life and health
reinsurance remains favourable. In the United Kingdom the company  is
well diversified: in addition to conventional risk-oriented  business
and its  focus  on  enhanced  annuities,  Hannover  Re  is  now  also
increasingly active in  business with  pension funds  - a  subsegment
that is  likely  to become  a  growth  driver in  the  coming  years.
Similarly, the company sees very attractive business prospects in the
area of health  insurance covers  for seniors in  the United  States.
Thanks  to  its  good  worldwide  positioning  in  life  and   health
reinsurance  the   company  is   looking  to   sustained   favourable
profitability,  while  growth  in  premium  volume  will  be  heavily
dependent on exchange  rate movements affecting  the currencies  most
relevant to our business, such as  the pound sterling, US dollar  and
Australian  dollar.  With  this  in  mind,  Hannover  Re  anticipates
double-digit growth in the original currencies for 2008. 

Hannover Re expects the net premium volume booked by the Group in the
full financial year to be roughly on the level of the previous year. 

In spite of  the conservatively oriented  asset portfolio  investment
income will fall significantly short of the previous year due to  the
protracted crisis on  the international markets.  In response to  the
turmoil on  stock  markets  Hannover Re  realised  losses  of  around
200 million euro in October so as to reduce its equity exposure. This
leaves only a minimal share portfolio,  the bulk of which is  hedged;
as things  currently  stand,  then,  Hannover Re  can  no  longer  be
affected by the historically unprecedented volatility. As far as  the
volume of investments is concerned,  it is Hannover Re's  expectation
that the level of the previous year can be maintained in view of  the
continuing positive  cash  flow  from underwriting  and  the  renewed
strength of the US dollar. 

For the fourth quarter - given a normal catastrophe loss experience -
Hannover Re considers a break-even result after tax to be attainable.
This assessment makes no allowance  for the use of accounting  policy
options or flexibility with respect to valuation measurements. 

For further information please contact: 

Press and Public Relations / Investor Relations:
Stefan Schulz (tel. +49 / 511 / 56 04-15 00,
e-mail: stefan.schulz@hannover-re.com) 

Press and Public Relations:
Gabriele Handrick (tel. +49 / 511 / 56 04-15 02,
e-mail: gabriele.handrick@hannover-re.com) 

Investor Relations:
Klaus Paesler (tel. +49 / 511 / 56 04-17 36,
e-mail: klaus.paesler@hannover-re.com) 

Please visit: www.hannover-re.com 

Hannover Re, with a gross premium of around 8 billion euro, is one of
the leading reinsurance groups in  the world. It transacts all  lines
of non-life and  life and health  reinsurance. It maintains  business
relations with  more  than 5,000  insurance  companies in  about  150
countries.  Its  worldwide   network  consists  of   more  than   100
subsidiaries,  branch  and  representative   offices  in  around   20
countries with a total  staff of roughly  1,800. The rating  agencies
most relevant to the insurance industry have awarded Hannover Re very
strong insurer  financial strength  ratings  (Standard &  Poor's  AA-
"Very Strong" and A.M. Best A "Excellent"). 

Disclaimer:
Some of the statements in  this press release may be  forward-looking
statements or statements  of future expectations  based on  currently
available information. Such statements are naturally subject to risks
and  uncertainties.  Factors  such  as  the  development  of  general
economic conditions, future  market conditions, unusual  catastrophic
loss events, changes in the  capital markets and other  circumstances
may cause the  actual events  or results to  be materially  different
from those anticipated by such statements. Hannover Re does not  make
any representation  or  warranty,  express  or  implied,  as  to  the
accuracy,  completeness  or  updated   status  of  such   statements.
Therefore, in no case whatsoever  will Hannover Re and its  affiliate
companies be liable to anyone for  any decision made or action  taken
in conjunction with the information  and/or statements in this  press
release or for any related damages. 

This announcement was originally distributed by Hugin. The issuer is
solely responsible for the content of this announcement. 

http://hugin.info/130686/R/1266377/279020.pdf
http://www.hannover-re.com
Copyright © Hugin AS 2008. All rights reserved. 

(END) Dow Jones Newswires

November 05, 2008 01:31 ET (06:31 GMT)