Interim Report 2/2010 - Hannover Re

Business development
We are satisfied with the development of our two business
groups – non-life reinsurance and life/health reinsurance –
in the second quarter. Although the burden of major losses
was considerably lower than in the first quarter, the level
for the second quarter again exceeded our expectations.
This contrasted with unrealised gains of EUR 87.2 million
in the corresponding period of the previous year. The bulk
of the unrealised losses – specifically EUR 53.2 million –
derived from the fair value development of inflation swaps
taken out to hedge inflation risks associated with the loss
reserves in the technical account, while an amount of
EUR 15.4 million stemmed from the performance of securities
deposits held by ceding companies for our account.
Demand for reinsurance solutions remains very strong, a
situation from which we profited thanks to our solid financial
strength and good competitive position. Prices in nonlife
reinsurance are broadly commensurate with the risks,
and we therefore slightly expanded our portfolio in this
business group. In life and health reinsurance, where we
intend to continue to grow going forward, demand remains
undiminished.
Gross written premium in total business increased by a
further 8.2% to EUR 5.7 billion (EUR 5.3 billion) as at 30
June 2010. At constant exchange rates, especially relative
to the US dollar, growth would have come in at 5.7%. The
level of retained premium retreated to 90.3% (93.0%). Net
premium earned climbed by 7.9% to EUR 4.8 billion (EUR
4.5 billion).
Bearing in mind our risk-averse asset allocation and the
prevailing low interest rate level, we are satisfied with the
development of our investments in the first half-year. Due
in part to the inflow of cash from the technical account, but
thanks principally to the favourable development of their
fair values owing to interest rate and currency effects, the
volume of assets under own management grew to EUR 25.4
billion (EUR 22.5 billion). Despite a significantly lower
interest rate level, ordinary income excluding interest on
deposits thus also surpassed the corresponding period of
the previous year to reach EUR 441.2 million (EUR 398.8
million). Interest on deposits climbed to EUR 151.2 million
(EUR 144.9 million).
Impairment losses of EUR 13.4 million (EUR 93.1 million)
were recognised on investments. Of this amount, EUR 7.1
million was attributable to fixed-income securities and
EUR 5.3 million to alternative investments. The writedowns
contrasted with write-ups of EUR 11.8 million,
thereof EUR 8.8 million on fixed-income securities and
EUR 3.0 million on alternative investments.
Thanks to the further rise in ordinary income and the reduced
impairment losses, our net investment income remained
virtually on the level of the previous year despite
the unrealised losses; it totalled EUR 551.4 million (EUR
569.2 million) as at 30 June 2010.
The operating profit (EBIT) stood at EUR 490.7 million
(EUR 603.3 million) as at 30 June 2010. The comparable
period had, however, been influenced by positive special
effects in life and health reinsurance of around EUR 161
million due to the acquisition of the ING life reinsurance
portfolio as well as the reversal of unrealised losses on
deposits held by US clients on behalf of Hannover Re
(ModCo derivatives). Adjusted for these special effects,
EBIT would have grown by 11%. Group net income came
in at EUR 310.6 million (EUR 433.5 million). Here, special
effects had influenced the previous year's result by an
amount of roughly EUR 144 million; if these effects are
factored out, Group net income would have grown by 7%
as at 30 June 2010. Earnings per share of EUR 2.58 (EUR
3.59) were generated, while the annualised return on
equity stood at 15.6% (28.8%).
Driven by Group net income, positive movements in exchange
rates and unrealised gains on investments, shareholders'
equity improved on the level of 31 December 2009
by EUR 524.9 million to reach EUR 4.2 billion despite the
dividend payment made in the second quarter. The book
value per share consequently also increased to EUR 35.15
(EUR 30.80). The policyholders' surplus, comprised of
shareholders' equity, minority interests and hybrid capital,
amounted to EUR 6.2 billion (EUR 5.6 billion).
The unrealised losses on our asset holdings recognised at
fair value through profit or loss totalled EUR 86.2 million.
6 INTERIM MANAGEMENT REPORT BUSINESS DEVELOPMENT Hannover Re interim report 2/2010