Annual Report 2010 - Hannover Re

and risk management. In the coming years we expect the reinsurance
market to develop a more vigorous growth momentum
than the primary market. Furthermore, it is our expectation
that earnings prospects will remain on a satisfactory
level.
Life and health reinsurance is generally characterised by its
stable growth and minimal exposure to random fluctuations
in results. There are nevertheless financial and non-financial
risks (particularly risks such as mortality and longevity, morbidity
and disability as well as the lapse risk), which are fully
integrated into Hannover Re’s risk management. In this context,
crucial importance attaches to the appropriate selection
of pricing assumptions, fundamental research into developments
affecting the biometric actuarial bases, the adequate
and complete reserving of all technical liabilities as well as risk
diversification (both geographically and in terms of risk types,
e.g. between mortality and longevity).
Investments
In view of the low yield level on government bonds and the
reduced risk premiums on corporate bonds, any increase in
investment income will be driven largely by the anticipated
further growth in asset holdings. Although indications are
emerging that money market rates will remain low on a sustained
basis, we believe that there is an increased probability
of a rise in yields – especially at the long end of the yield
curve, with corresponding effects on equity from medium- and
long-dated bonds. We shall counter this with a slightly reduced
interest rate positioning and by expanding the balance
sheet protection for our shareholders’ equity through recognition
at cost.
Bearing in mind the current economic expectations, we shall
moderately increase our equity allocation in the current year.
However, since we anticipate substantially greater volatility on
equity markets, we shall manage this asset class particularly
tightly according to risk considerations. The above notwithstanding,
we shall counteract a potential increase in volatility
through broad diversification of asset classes and individual
debtors.
Outlook for the full 2011 financial year
We expect another very good overall result for the Hannover
Re Group in the current year. The non-life reinsurance
business group is expected to deliver stable or slightly higher
net premium income, with an increase of up to 3%. Despite
the continued trend towards softening markets, we anticipate
a very good result for 2011. The life and health reinsurance
business group is forecast to generate net premium growth of
10% to 12% and an EBIT margin in excess of 6%.
The expected positive cash flow that we generate from the
technical account and our investments should – subject to
stable exchange rates – lead to further growth in our asset
portfolio. In the area of fixed-income securities we continue
to stress the high quality and diversification of our portfolio.
We are targeting a return on investment of 3.5% for 2011.
Bearing in mind the satisfactory to good market conditions
described above in non-life and life/health reinsurance as well
as our strategic orientation, we are looking forward to another
good financial year in 2011. We expect our gross premium
volume in total business to grow by about 5%. If no allowance
is made for the special effects that favourably influenced the
result in 2010, the net income generated by the Hannover Re
Group will inevitably fall short of the previous year’s level.
As things currently stand, based on our positioning and our
financial strength as well as the business prospects described
above, we expect Group net income to come in at around EUR
650 million. This is subject to the premise that the burden of
catastrophe losses does not significantly exceed the expected
level of around EUR 530 million and that there are no drastically
adverse movements on capital markets. For 2011, as in
recent years, we are therefore aiming for a dividend in the
range of 35% to 40% of Group net income.
Matters of special significance arising after the closing date
for the consolidated financial statements are discussed in Section
7.11 of the notes “Events after the balance sheet date”
on page 185.
Our strategy of progressively stepping up investments in real
estate will continue in 2011. We anticipate further attractive
opportunities here in our focus markets of Germany and the
United States. Within the bounds of our investment strategy
we shall make active use of other types of alternative investments
in order to diversify our risks and boost returns.
98 Management report Forecast
Hannover Re Group annual report 2010