Nov. 5 (Bloomberg) -- Hannover Re, Germany's second-biggest reinsurer, won't pay a dividend for this year after writedowns on investments and storm claims left it heading for its first annual loss.

``The management won't recommend the payout of a dividend for this year to preserve our capital,'' Chief Financial Officer Elke Koenig said in an interview. Hannover Re has no plan to raise capital and aims ``to fully benefit from the expected increase in demand for reinsurance in 2009,'' she said.

The Hanover, Germany-based company today joined Swiss Reinsurance Co., the world's second-biggest reinsurer, in reporting a third-quarter loss amid slumping stock markets and claims from Hurricanes Gustav and Ike. Chief Executive Officer Wilhelm Zeller, 64, last month scrapped a full-year target for a return on equity of more than 15 percent, after a loss of 142.8 million euros in the first nine months.

The net loss for the three months through September was 395 million euros ($509 million), the first quarterly shortfall since 2005, and compared with a year-earlier profit of 284.3 million euros. The company said it may break even in the fourth quarter.

``It would be very optimistic to expect them to have a full-year profit,'' said Robert Mazzuoli, an analyst at Landesbank Baden-Wuerttemberg in Stuttgart, who has a ``hold'' rating on the stock. ``October writedowns will weigh on the fourth quarter's profit and we might also see some winter storms.''

The shares fell 5.5 percent to 19.57 euros in Frankfurt today, bringing this year's decline to 37 percent and giving the reinsurer a market value of 2.4 billion euros.

Writedowns

Hannover Re wrote down 355.3 million euros on equities in the first nine months and 77.3 million euros on fixed-income securities. It booked losses of about 200 million euros on investments in October to bring its equity portfolio to a ``minimal'' size, of which the majority is hedged, it said.

``As things currently stand, Hannover Re can no longer be affected by the historically unprecedented volatility,'' the company said.

Swiss Re yesterday posted its first loss in almost six years and suspended a share buyback program after wrong-way bets on credit-default swaps. Munich Re, the world's biggest reinsurer, cut its full-year profit forecast on July 25 following writedowns on equity investments. The company is scheduled to report third-quarter results on Nov. 7.

Hurricanes Gustav and Ike cost Hannover Re about 250 million euros, bringing catastrophe losses to 14.3 percent of net premiums in non-life reinsurance for the first nine months. The storms may saddle the industry with as much as $18 billion in insured losses, according to Swiss Re estimates.

Claims, Premiums

Gross premium income in property and casualty reinsurance, Hannover Re's biggest division, fell 0.2 percent to 1.14 billion euros in the third quarter, while spending on claims and other costs at the unit worsened to 114.2 cents for every euro in premiums collected, from 98.1 cents a year ago.

The life and health reinsurance unit's gross written premiums rose 3 percent to 825.3 million euros.

The company's forecast for the fourth quarter ``makes no allowance for the use of accounting policy options or flexibility with respect to valuation measurements,'' Hannover Re said in the statement.

Asked on a conference call with analysts whether there is a successor being prepared to replace him, Zeller said ``yes,'' without giving more details.

Zeller, who has headed Hannover Re since 1996, announced on Sept. 8 that he will resign next year as his contract expires at the end of June.

To contact the reporters on this story: Oliver Suess in Munich at osuess@bloomberg.net; Jann Bettinga in Frankfurt at jbettinga@bloomberg.net

Last Updated: November 5, 2008 11:55 EST