Hannover Re Reiterates Full-Year Earnings Target as Net Falls 24 Percent
Hannover Re, Germany’s second- biggest reinsurer, reiterated its full-year earnings target after quarterly profit fell 24 percent on lower investment income.
Hannover Re dropped 6.1 percent in Frankfurt trading after saying net income slid to 159.6 million euros ($209 million) from 208.7 million euros a year earlier. Analysts surveyed by Bloomberg had estimated earnings of 154 million euros.
Munich Re and Swiss Reinsurance Co., the world’s largest reinsurers, reported profit last week that exceeded analysts’ estimates on bigger gains from investments. Hannover Re still plans to reach a goal of 600 million euros in net income this year, so long as second-half catastrophe claims don’t exceed “the expected level of around 280 million euros,” said Chief Executive Officer Ulrich Wallin in a statement.
The full-year target “is not an easy one,” Konrad Becker, an analyst at Merck Finck & Co. in Munich, wrote in a note today. “Given the fact that Hannover Re had to spend 408 million euros for big claims in the first half, we think the 280 million-euro target in the second half may be reached very fast.”
Oil Rig Damages
Reinsurers, which help insurers such as Axa SA shoulder risks for clients, face bills for disasters including European winter storm Xynthia, the earthquake that hit Chile in February and the oil spill in the Gulf of Mexico. Hannover Re set aside 89 million euros for claims tied to the Deepwater Horizon oil rig that caught fire and sank in the Gulf of Mexico, after earlier estimating damages at about 40 million euros.
Hannover Re fell 2.35 euros to 35.85 euros at the 5:30 p.m. close of trading in Frankfurt. The shares have gained 9.6 percent this year, making them the seventh-best performer in the 29-member Bloomberg Europe 500 Insurance Index. That gives the company, which is 50.2 percent owned by German insurer Talanx AG, a market value of about 4.3 billion euros.
Hannover Re’s net income for the first six months fell to 310.6 million euros from 433.5 million euros, which included one-time gains of about 144 million euros, partially from the reinsurer’s acquisition of a portfolio of Scottish Re Group’s U.S. insurance policies that cover life business reinsured by ING Groep NV.
Lower Investment Income
One-time gains boosted earnings before taxes in the second quarter of 2009 by about 75 million euros, Chief Financial Officer Roland Vogel said on a conference call today.
The reinsurer’s goal for return on equity of at least 15 percent this year is “reachable,” he said. The annualized ROE stood at 15.6 percent at the end of June, Hannover Re said.
Investment income fell 27 percent to 271.9 million euros in the quarter, beating the 264 million-euro analyst estimate. The year-earlier figure got a boost of about 122 million euros before taxes due to a decrease in credit spreads on derivatives mostly related to the ING portfolio acquisition, while those instruments led to a charge of 15.4 million euros this year, the reinsurer said in the quarterly report filed on its Website.
The company’s combined ratio worsened to 99.5 percent from 98.9 percent a year ago. The measure shows costs and payments for claims as a percentage of the property and casualty reinsurance unit’s premium income.
It’s “too early to give a claims estimate for the current floods in eastern Europe,” CFO Vogel said, adding that they won’t endanger the reinsurer’s full-year profit target.
To contact the reporter on this story: Oliver Suess in Munich at osuess@bloomberg.net
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