Hannover Re, the world’s fourth-biggest reinsurer, cut its dividend payout after full-year profit fell 19 percent on higher claims from natural disasters.
Net income declined to 606 million euros ($790 million) last year from 749 million euros a year earlier, the Hanover, Germany-based company said in an e-mailed statement today. The reinsurer proposed a dividend of 2.10 euros per share for 2011 after a payout of 2.30 euros for 2010.
Hannover Re, led by Chief Executive Officer Ulrich Wallin, said last month it surpassed a 500 million-euro 2011 profit target by about 100 million euros after selling “high-quality” government debt and reinvesting the proceeds in corporate bonds. Earnings of insurers and the reinsurers who help them shoulder risks for clients were hurt last year by near record-low interest rates and losses from disasters, including the earthquakes in Japan and New Zealand.
“Particularly thanks to the further increase in our shareholders’ equity, we are able to pay a dividend for 2011 that is somewhat higher than our strategic dividend target of 35 percent to 40 percent of group net income,” Wallin said. The 2011 payout represents a payout ratio of 42 percent.
Hannover Re rose 65.5 cents, or 1.6 percent, to 42.79 euros by 12:26 p.m. in Frankfurt trading, bringing the gain this year to 12 percent and valuing the company at about 5.2 billion euros. By comparison, the 28-company Bloomberg Europe 500 Insurance Index has climbed 19 percent in 2012. The reinsurer is 50.2 percent owned by German insurer Talanx AG.
Hannover Re said it’s “looking to the current financial year with optimism,” without giving a profit target for 2012.
Net income rose 34 percent to 224 million euros in the fourth quarter, helped by positive currency effects and lower taxes. That beat the 203 million-euro average estimate of 11 analysts surveyed by Bloomberg. The floods in Thailand cost the reinsurer about 196 million euros, an estimate that Wallin called “conservative” at a press conference in Hanover today.
Hannover Re aims to increase its gross premiums by 5 percent to 7 percent after a 5.8 percent increase to 12.1 billion euros in 2011, it said. Return on investments is expected to be about 3.5 percent this year, compared with 3.9 percent in 2011.
Last year’s natural disasters cost insurers and reinsurers a record $105 billion, surpassing the $101 billion in 2005, when hurricanes Katrina, Rita and Wilma struck the U.S. and other regions in the Gulf of Mexico, Munich Re said on Jan. 4. More than half of last year’s insured losses will be paid by reinsurers, according to reinsurance broker Willis Re.
Hannover Re said on Nov. 9 that it planned to pay a dividend for 2011 that “could even exceed 40 percent of group net income.” Analysts expected the reinsurer would cut the payout to 2.05 euros, according to data compiled by Bloomberg.
Munich Re, the world’s biggest reinsurer, said yesterday that it aims to more than triple profit to about 2.5 billion euros this year as investment income increases and Greek debt writedowns aren’t repeated. The Munich-based company proposed an unchanged dividend for 2011.
Hannover Re said in a separate statement today that it will change its legal form to a Societas Europaea, or SE, a European public limited company. The change is still subject to the approval of the annual shareholders meeting in May.
“The legal form of an SE enables the company to relocate its registered office within the European Union,” Hannover Re said. “This could become significant in connection with the implementation of Solvency II. Hannover Re does not, however, have any concrete plans for such a relocation of its registered office at the present time.”
Relocation might make sense if Hannover Re would gain “a substantial advantage” in seeking regulatory approval for an internal model under new Solvency II rules that would be independent from the company’s main shareholders, Wallin said at the press conference today. “We don’t expect this to be the case, but we need to make sure that we would be able to act if needed,” he added.
Solvency II rules are scheduled for introduction in 2013. Regulators and the European Union have agreed to postpone full application of the rules until 2014, following discussions with the industry.