Hannover Re Profit Falls on Lower Investment Income

Hannover Re, the world’s third-biggest reinsurer, said third-quarter profit fell 23 percent on lower investment income, beating analysts’ estimates.

Net income fell to 205.5 million euros ($277 million) from 265.5 million euros a year ago, the Hanover, Germany-based company said in a statement today. That compared with a 196.3 million-euro average estimate of six analysts surveyed by Bloomberg.

Hannover Re, led by Chief Executive Officer Ulrich Wallin, confirmed its target for full-year profit of about 800 million euros and said it aims to earn 850 million euros next year. That compares to record earnings of 858 million euros last year.

“Despite challenging market conditions, and particularly in view of the low interest rate level, we generated group net income of 613 million euros and are thus well on track to achieve our full-year target,” Wallin said in the statement, commenting on the company’s earnings in the first nine months.

Hannover Re (HNR1) said in September that it expects global reinsurance rates to remain little changed in January, when reinsurers typically renew a majority of annual property and casualty contracts. Reinsurers, which help primary insurers such as Allianz SE shoulder risks in return for a share of premiums, face challenges from low interest rates and an abundant supply of capital for their coverage that weighs on prices.

Investment Income

Net investment income from Hannover Re’s 31.8 billion euros in assets under management declined 27 percent to 364.2 million euros in the quarter. The year earlier figure was boosted by the sale of real estate in the U.S. and gains from instruments used to hedge against inflation and derivatives associated with securities deposits held by U.S. life-insurance clients. The reinsurer said it sticks to a target for 3.4 percent return on investment this year and expects 3.2 percent in 2014.

The company’s annual budget of 625 million euros for major claims compares to an actual claims figure of 446.7 million euros for the first nine months of the year.

Hannover Re said last month that hailstorm Andreas, which hit Germany in July, may result in a “disproportionately slight” net loss of about 64 million euros.

Insured losses from floods and hailstorms in Germany may be as high as 5 billion euros, the company said two weeks ago. Hailstorm Andreas is expected to cost the insurance industry 2.5 billion euros, while a June hailstorm named Manni may cost 500 million euros and another that struck in August 200 million euros, Hannover Re said. The reinsurer said it expects industry losses of 1.8 billion euros from the floods in May and June.

Hannover Re’s shares rose 0.8 percent this year, compared with a 23 percent gain for the Bloomberg Europe 500 Insurance Index. German insurer Talanx AG (TLX), which last year sold shares in an initial public offering, owns 50.2 percent of Hannover Re.

To contact the reporter on this story: Oliver Suess in Munich at osuess@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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