Hannover Re Targets Record Profit as Quarterly Net Rises 63%

Hannover Re Targets Record Profit as Quarterly Net Rises 63%
The Hannover Re headquarters are seen in Hanover. Photographer: Michele Tantussi/Bloomberg

Hannover Re, the world’s fourth-biggest reinsurer, expects record earnings this year after reporting a 63 percent increase in third-quarter profit.

Net income rose to 265.5 million euros ($339 million) from 163.2 million euros a year earlier, the Hanover, Germany-based reinsurer said in a statement today. That beat the 216 million-euro average estimate of 17 analysts surveyed by Bloomberg.

Full-year profit is expected to be “in excess of” 800 million euros should major losses not significantly exceed the predicted level of 560 million euros and assuming there are no drastic downturns on capital markets, the company said. While Hannover Re said it’s too early to make “reliable statements” on claims from Hurricane Sandy, the reinsurer doesn’t expect losses to exceed its annual budget, Chief Financial Officer Roland Vogel said on a conference call today.

Hannover Re shares climbed 5 percent to 56.17 euros at 9:38 a.m. in Frankfurt trading. The stock has gained 47 percent this year, valuing the company at 6.8 billion euros. The Bloomberg Europe 500 Insurance Index has gained 25 percent in the same period. German insurer Talanx AG, which sold shares in an initial public offering last month, holds 50.2 percent of Hannover Re.

Superstorm Costs

Sandy, the Atlantic superstorm that left 8.5 million homes and businesses without power after hitting New Jersey, New York and other East Coast states last week, may cost insurers and reinsurers, which shoulder some of the risks in return for a share of the premiums, $10 billion to $20 billion, according to Eqecat Inc., a provider of catastrophic risk models.

“Estimating conservatively, Sandy costing some 100 million euros and excluding other major losses could lead to 1 billion-euro range estimations for the net profit 2012,” Fabrizio Croce, a Zurich-based insurance analyst at Kepler Capital Markets, wrote in a report on Hannover Re to clients. Croce has a hold rating on the reinsurer’s shares.

Claims of more than $18.5 billion would make Sandy the second-most expensive hurricane on record, behind Katrina in 2005, which cost $62.2 billion. Hurricane Ike, which struck the Gulf of Mexico in 2008, is the industry’s second-most expensive hurricane with Hurricane Andrew in 1992 at $17 billion ranking third, according to data compiled by Munich Re, the world’s biggest reinsurer.

Good Platform

Hannover Re said net income for the first nine months of the year climbed 76 percent to 670.8 million euros.

“The group net income reported for the first nine months puts in place a good platform for achieving a very pleasing result for the full 2012 financial year,” Chief Executive Officer Ulrich Wallin said in the statement.

The reinsurer’s full-year profit target compares with a net income of 606 million euros for 2011, when Hannover Re reported claims of 981 million euros from natural disasters, including the earthquake and tsunami in Japan and the floods in Thailand. Hannover Re’s previous record profit was 749 million euros in 2010.

The reinsurer’s dividend payout for 2012 may “slightly exceed” its target range of 35 percent to 40 percent, CFO Vogel said. Hannover Re cut its 2011 payout to 2.10 euros per share from 2.30 euros in 2010 following last year’s record claims from natural disasters.

Claims of 49.2 million euros from the drought in the U.S. were the reinsurer’s largest single loss in the quarter. Hannover Re defines claims costing more than 10 million euros as major losses.

Investment Income

Investment income rose 80 percent to 499.3 million euros in the quarter, helped 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.

Hannover Re expects 2013 net income of about 800 million euros, assuming claims from major losses don’t “significantly exceed” an expected level of about 600 million euros in non-life reinsurance and provided there are no adverse movements on capital markets.

Munich Re, the world’s biggest reinsurer, is scheduled to report third-quarter figures on Nov. 7.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE