Hannover Re Falls Most Since July on Operating Profit

Hannover Re, the world’s third-biggest reinsurer, dropped the most in eight months in Frankfurt trading after fourth-quarter operating profit missed analysts’ estimates.

Hannover Re fell as much as 3.1 percent to 58.83 euros, the biggest decline since July 2. The shares slid 2.2 percent to 59.42 euros at 11.21 a.m. Operating profit fell 36 percent to 243 million euros ($337 million), the company said in a statement today. It was expected to earn 364 million euros, according to the average estimate of five analysts surveyed by Bloomberg.

“Life and health reinsurance did not live up to expectations,” Hannover Re said, citing a “substantial strengthening of the reserves for Australian disability business” that lowered operating profit last year by about 100 million euros.

Prices charged by reinsurers, which help primary insurers shoulder risks, are under pressure because of lower-than-average disaster losses and as the supply of capital is boosted by pension fund money that competes with traditional reinsurers through catastrophe bonds and other types of insurance-linked securities.

Hannover Re’s shares have lost 4.8 percent this year compared with a 0.7 percent gain for the Bloomberg Europe 500 Insurance Index. German insurer Talanx AG owns 50.2 percent of the reinsurer.

The life and health reinsurance unit reported an operating loss of 17 million euros in the fourth quarter after a 46 million-euro profit a year earlier. The property and casualty reinsurance business had a 21 percent decline in operating profit.

Low Rates

Fourth-quarter investment income fell 20 percent to 359 million euros. Hannover Re made a gain a year earlier from instruments used to hedge against inflation and derivatives associated with securities deposits held by U.S. life-insurance clients.

“In view of the prolonged period of low interest rates and increasing competition, especially in non-life reinsurance, the general environment remains challenging,” Chief Executive Officer Ulrich Wallin said in the statement.

In property and casualty reinsurance, Hannover Re increased its annual budget for major claims to 670 million euros for this year from 625 million euros set aside in 2013. That compares to an actual claims figure of 578 million euros for 2013. Claims from major disasters, which Hannover Re defines as costing it more than 10 million euros, were 478 million euros in 2012.

The reinsurance industry had about $322 billion in capital at the end of 2013, almost a record, according to Guy Carpenter, the reinsurance broker of Marsh & McLennan Cos. As a result, prices for property-catastrophe policies declined 11 percent in January and also fell for most other types of coverage, according to the broker.

Tax Gain

Fourth-quarter net income at Hannover Re rose 48 percent to 265 million euros as it booked a gain of about 90 million euros resulting from the release of provisions for deferred taxes. The company was expected to earn 216 million euros, according to the average estimate of 10 analysts surveyed by Bloomberg. It kept its dividend unchanged at 3 euros per share.

Hannover Re re-confirmed its profit target for this year of 850 million euros.

Munich Re, the world’s biggest re-insurer, said on Feb. 4 that it will increase its dividend after fourth-quarter profit beat estimates on lower catastrophe-related costs. Swiss Re Ltd., the second-biggest reinsurer, also boosted its proposed payout for 2013 after fourth-quarter profit exceeded analysts’ estimates.

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