How To Be A Successful Insurance Company

Transcription

1 Hannover Re The "Multi-Specialist" Wilhelm Zeller Chairman of the Executive Board The 32 nd Annual AIFA Conference Boca Raton, 6 March 2007

2 HR Overview Multi-Specialist 1 Jan Renewals Outlook DISCLAIMER This presentation does not address the investment objectives or financial situation of any particular person or legal entity. Investors should seek independent professional advice and perform their own analysis regarding the appropriateness of investing in any of our securities. While Hannover Re has endeavoured to include in this presentation information it believes to be reliable, complete and up-to-date, the company does not make any representation or warranty, express or implied, as to the accuracy, completeness or updated status of such information. Some of the statements in this presentation may be forward-looking statements or statements of future expectations based on currently available information. Such statements naturally are subject to risks and uncertainties. Factors such as the development of general economic conditions, future market conditions, unusual catastrophic loss events, changes in the capital markets and other circumstances may cause the actual events or results to be materially different from those anticipated by such statements. This presentation serves information purposes only and does not constitute or form part of an offer or solicitation to acquire, subscribe to or dispose of, any of the securities of Hannover Re. Hannover Rückversicherung AG. All rights reserved. Hannover Re is the registered service mark of Hannover Rückversicherung AG.

3 Agenda: Hannover Re The somewhat different reinsurer Hannover Re The "Multi-Specialist" Outlook from the 1 Jan 07 renewals

4 Hannover Re The somewhat different reinsurer

5 HR Overview Multi-Specialist 1 Jan Renewals Outlook UNIQUE GROUP STRUCTURE Majority owner, but operational and financial independence Talanx AG* Free Float 50.2% 49.8% 55.8% 8 German Mutuals Others 42.7% 1.5% German Business >100 Subsidiaries, Branch/Rep. Offices in ~20 countries International Business N.B.: The majority shareholder is not indifferent towards dividends! 1 * 100% owned by HDI VaG

6 HR Overview Multi-Specialist 1 Jan Renewals Outlook Hannover Re Group THE SOMEWHAT DIFFERENT REINSURER Focus on profitability, not on premium, league tables or market share We have no premium growth targets, only for earnings We are not all things to all people We specialise in segments that we know best Being a "multi-specialist" with a global footprint reduces risk and stabilises earnings Capital management Lean equity base with intelligent use of hybrids and soft capital We have the lowest CoC in our industry (7.1%) Cost leadership We have the lowest administrative-expense ratio in the industry (3.0%) Fast, flexible, and undogmatic approach to business opportunities We often do exactly the opposite of what our peers do 2

7 HR Overview Multi-Specialist 1 Jan Renewals Outlook Top line STRONG NET PREMIUM GROWTH, ESP. INTO THE HARD MARKET Gross and net premium tripled within 10 years 12,500 in m. EUR 11,507 12,463 11,343 10,000 9,567 9,669 7,500 CAGR: 13.0% 6,706 8,320 6,496 7,688 8,156 7,575 7,739 5,000 3,272 2,569 2,500 4,505 3,960 4,180 3,549 3,338 5,210, Net premium earned Gross written premium CAGR = 13.0% CAGR = 12.8% German GAAP, US GAAP, from 2004 IFRS

8 HR Overview Multi-Specialist 1 Jan Renewals Outlook Bottom line I ANALYSTS: WE'RE BACK ON TARGETED EPS GROWTH TRACK Proof to our claim that single years of volatility do not disrupt l.-t. positive trend!,5,4,4,3,3,2 CAGR: 14.6 % ) ) ) Analysts' consensus: 4.05,2,1, ) 3) 3) 4) 4) 4) 4) E 1) 2) EPS 1) Figures have been adjusted to the 3-for-1 share split in July ) One of HR's "Triple-10" targets: Annual double-digit growth 3) Revised DVFA/GDV method (including goodwill write-off) 4) Earnings per share on US-GAAP basis, fully diluted 5) Analysts' consensus estimate before 9/11 losses 6) Analysts' consensus estimate before 4 Florida hurricanes 7) Analysts' consensus estimate before "KRW" 4

9 HR Overview Multi-Specialist 1 Jan Renewals Outlook Bottom line II OVER TEN YEARS: WE'VE OVERACHIEVED OUR ROE TARGETS Low standard deviations show: profitability is not a result of excessive risk-taking 26.0% 18% 17.1% 17.1% 15.9% 15.7% 14.0% 13.9% 13.5% 13.1% 12.7% 12.5% 12.3% 12.2% 12.1% 11.7% 3) ~ 17-18% 13.0% 13.9% 15% 11.5% 11.5% 12.0% 12.6% 11.4% 9% 1.9% 0.7% 0% Minimum target ) 2000 Actual E Avg Avg E St. Dev. (10y) = 7.6% "Sharpe ratio" 2) = 1.16x St. Dev. (5y) = 6.7% "Sharpe ratio" 2) = 1.26x 5 1) 750 bps above 10-year government bonds (RfR), after tax 2) (Avg. RoE Avg. RfR)/St. Dev. 3) Based on analysts' consensus estimate

10 HR Overview Multi-Specialist 1 Jan Renewals Outlook Third-party view on R/I results OUR TRACK RECORD IS EXCELLENT: LOW VOLA/HIGH ROE We are comfortably in the best quadrant, over 5- and 10-year period 20% RoE E average/ RoE E average 15% 10% 5% 0% -5% Hannover Re Other reinsurers -10% 0pp 5 pp 10 pp 15pp 20pp 25pp 30pp 35pp Standard deviation 10-year risk/return comparison 5-year risk/return comparison 6 Source: Benfield's Global R/I Market Review, January 2007

11 HR Overview Multi-Specialist 1 Jan Renewals Outlook Risk management RISK TRANSFER INTO CAPITAL MKT. SURPASSES TRAD. RETRO... and there are more capital market transactions to come! Left columns: traditional protections Right columns: capital market-based protections in m. EUR , E Traditional retro 1) Structured covers Securitisation K3-K5 Cat. Bond "Eurus" Other securitisations 2) 7 1) Estimation for U.S. wind protection 2) 2006 = L6 (monetisation of life embedded value), 2007 = Merlin CDO (reinsurance recoverable default risks)

12 HR Overview Multi-Specialist 1 Jan Renewals Outlook High returns at low volatility = our risk management SEVERAL LEVELS OF PROTECTION SAFEGUARD CAPITAL BASE Our protection is further improved over ) ~ EUR 0.2 bn. additional protection up to1:250y event L/H EBIT ~ EUR 0.2 bn. ~ EUR bn. protection up to the 1:100y event 2) Merlin CDO: EUR 1 bn. of securitised reinsurance recoverables EURUS Traditional XL protections (incl. cat. swaps) K5 Q/S securitisation ~ EUR 0.1 bn. EUR bn. 3) ~ EUR 0.4 bn. + expected premium Non-Life EBIT ~ EUR 0.7 bn. Policyholders' surplus (shareholders' equity, minorities, hybrid capital) ~ EUR 5.0 bn. 8 1) All figures are indicative values for ) K5 fully included as simplification (not fully exhausted at 1:100y) 3) U.S. wind/earthquake = EUR 460 m.; EU wind = EUR 580 m.; Japan wind/earthquake = EUR 230 m.

13 Hannover Re The "Multi-Specialist"

14 HR Overview Multi-Specialist 1 Jan Renewals Outlook League table (premium) WE ARE AMONG THE TOP REINSURERS IN THE WORLD And we will stay on top, even after the sale of Praetorian (2005 figures in million USD 1) ) Rank Group Country GWP NPW 1 Munich Re D 26,482 22,606 2 Swiss Re CH 23,151 21,229 3 Berkshire Hathaway 2) USA 12,486 11,646 4 Hannover Re D 11,452 9,166 5 Lloyd's 3) GB 9,053 6,568 6 GE Global Ins. Holdings 4) USA 8,565 6,697 7 XL Re BDA 5,686 5,013 8 London Re CDN 4,243 3,730 9 RGA Re USA 4,222 3, Everest Re BDA 4,109 3, Transatlantic Re USA 3,888 3, Partner Re BDA 3,665 3, Korean Re ROK 2,975 2, SCOR F 2,851 2, Odyssey Re USA 2,627 2,302 "Volume is vanity, profit is sanity" = No appetite for acquisitions ex L/H! 9 1) Source: A.M. Best 2) GenRe Group; Berkshire Hathaway Re Group (National Indemnity) 3) 64 syndicates (as of Jul 2006) 4) ERC, GE Re, GE Frankona Group

15 HR Overview Multi-Specialist 1 Jan Renewals Outlook Non-Life R/I THE SOMEWHAT DIFFERENT REINSURER Centralised underwriting approach Secures U/W discipline and opportunistic cycle management Lean, efficient infrastructure with no U/W authority in London or U.S. Cycle management We only grow our market share in "hard" markets Reserve adequacy No. 1 priority in our risk-management Traditionally high comfort level (> 50%); no material A&E* exposure Distribution through brokers Specialty vs. commodity business ("We are not all things to all people") No appetite for acquisitions Our cycle management gets us all the profitable business we want A no frills, opportunistic player 10 * Asbestos & environmental

16 HR Overview Multi-Specialist 1 Jan Renewals Outlook Non-life R/I HANNOVER RE - THE "MULTI-SPECIALIST" Only two biz groups going forward, but same global diversification across all lines Non-Life Reinsurance USA Germany Marine (incl. energy) Aviation Credit, surety & political risks Global cat. XL business Global facultative business Structured products "Best overall reinsurer 2004 and 2006"* "No. 2 R/I in Germany, the No. 2 P/C mkt." "The leading XL Reinsurer" "One of the market leaders" "No.3 worldwide" (Neg. correlation to rest of P/C) "Dedicated cat. writer (~10% of GWP)" "We offer specialised expertise" "Advanced Solutions for more than 25 years" Hannover Re, a Non-Life "Multi-Specialist" 11 * As voted in Flaspoehler survey

17 HR Overview Multi-Specialist 1 Jan Renewals Outlook Non-life R/I THE "MULTI-SPECIALIST" WITH A GLOBAL FOOTPRINT Only two biz groups going forward, but same global diversification across all lines Non-Life split 2005 Marine 322 Facultative 6% 324 6% Cat. XL 327 6% Aviation 427 8% Germany 480 9% Structured products % Credit & surety 282 5% USA 1,257 22% Others 1,298 22% Total GWP * : EUR 5,641 m. Germany % Other European countries 1,035 18% Asia 302 5% Africa 94 2% Lat. America 94 Australia 2% 94 2% UK % North America 2,367 42% 12 * P/C R/I and Financial R/I

18 HR Overview Multi-Specialist 1 Jan Renewals Outlook Diversification SALE OF PRAETORIAN: MINOR EFFECT ON DIVERSIFICATION Remaining business groups are excellently diversified Non-Life RBC decreases from 63% (old P/C R/I) to ~56% 1,00 4% 10% 15% 0,50 100% 83% 57% 53% 0,00 P/C R/I P/C R/I and Fin R/I P/C R/I, Fin R/I and L/H R/I P/C R/I, Specialty, Fin R/I and L/H R/I Effective capital requirement Diversification effect 13

19 HR Overview Multi-Specialist 1 Jan Renewals Outlook Business going forward OUR PIPELINE OF OPPORTUNITIES R/I offers plenty of profitable future growth - no need to diversify into e.g. primary Incoming business: U.S. property catastrophe - despite Florida ruling New opportunity in the German market ReTakaful, emerging markets (Latin America, Caribbean, CEE, South/Southeast Asia), Credit & surety, Life/Health business,... Outgoing business: Less retro purchasing overall (= redeployment of capital from Praetorian sale) Profitable securitisations (R/I recoverables, K series, others) We are not short of profitable ideas! 14

20 HR Overview Multi-Specialist 1 Jan Renewals Outlook Life/Health R/I THE SOMEWHAT DIFFERENT REINSURER We are not all things to all people We focus on five areas of business: - Stochastic partnerships - Bancassurance - New markets - Multinationals - Traditional mortality risks 10 key markets = 95% of our business; 50 main clients = 85% of our portfolio Sophisticated client-relationship management Ability to differentiate between value-creating and value-destroying clients We create win-win situations (don't play zero-sum games) We do consider acquisitions but only if strategic fit/complement no strategic prices Multinationals* 13% Trad. mortality risks* 44% Focused, long-term, growth-oriented, win-win approach Stochastic partnerships* 21% New markets* 13% Bancassurance* 9% 15 * Split based on 2005 figures

21 HR Overview Multi-Specialist 1 Jan Renewals Outlook Life/Health R/I HANNOVER LIFE RE - THE "MULTI SPECIALIST" Hannover Life Re's "5-Pillar-Model" Life/Health Reinsurance Stochastic Partnerships Growth market New business financing More risks (esp. lapse risk) Higher prices BATs Hardly any competition Good conditions in most markets 21%* Bancassurance Most successful distribution channel for Individual European life assurance and pension insurance Knowledge-oriented "Right" products, "right" risk-selection, "right" remuneration for bank employees Excellent conditions 9%* New Markets "Generation 60+" Solutions for Wealth decumulation Age-related risks (critical illness, LTC) Trad. Mortality Risks Leader in selected markets and products High business volume, thorough client selection Local, full service Multinationals Large, int. companies Dual marketing (central & local support) Ceded business Financing R/I Risk-oriented R/I 13%* 44%* 13%* 16 * Split based on 2005 figures

22 HR Overview Multi-Specialist 1 Jan Renewals Outlook Life/Health R/I WITHIN A DECADE: FROM NOBODY TO PREMIER LEAGUE PLAYER We do expect significant top- and bottom-line growth in coming years??? in m. EUR 2, , ,425 2,371 Mid-term targets: 1,403 GWP Growth + 12% - 15% EBIT return 5% EBIT growth + 12% 15% 142 1) 1) 2) 3) 4) E Gross written premium Premium deposits 17 1) German-GAAP basis 2) US-GAAP basis incl. premium deposits 3) IFRS basis incl. premium deposits 4) Not yet reported

23 Outlook from the 1 Jan 07 renewals

24 HR Overview Multi-Specialist 1 Jan Renewals Outlook HANNOVER RE'S 1 JAN 07 RENEWAL HIGHLIGHTS IN A NUTSHELL The hard market is not over yet More than 2/3 of 2006 property/casualty treaty book renewed at 1 Jan 07 Total premium volume increased by 2%, mainly driven by German market Unchanged overall risk appetite compared to previous year Mixed premium picture in non-catastrophe lines of business Peak of hard market behind us, but lagging effects in P&L until C/Y 2008/2009 High underwriting discipline maintaining stable terms and conditions Traditional retro covers somewhat increased, while main renewal date is 1 May Sufficient capacity is available at right price in virtually all lines Cedents increased their retentions further Slightly increased volume, marginally decreased exposure 18

25 HR Overview Multi-Specialist 1 Jan Renewals Outlook Florida NEW FLORIDA LEGISLATION NOT A BIG DEAL (At least not for us!) Florida needs capacity of ~ USD 150 bn. for a 1:100y event (~ USD 55 bn. for personal lines: RMS 6.0) Additional capacity from FHCF* USD 12 bn.; available for personal lines only Who will buy how much from FHCF*? "There is some uncertainty associated with interest rates that would hamper our ability to cover the $12BB on top of the mandatory layer [Note that] we are only obligated by law to the extent of our cash and our bonding capability. [Any unfunded liability] would be a shortfall to the insurance companies " (Unnamed FHCF official, quoted in IBNR Weekly #5/2007) Even "courageous" FHCF* clients (90 % buyers) need second-event and other additional coverage 19 * Florida Hurricane Catastrophe Fund

26 HR Overview Multi-Specialist 1 Jan Renewals Outlook Florida NEW FLORIDA LEGISLATION NOT A BIG DEAL (CONT'D) (At least not for us!) Around USD bn. R/I premium in Florida about to be displaced Hannover Re mostly writing commercial business (market share 3.5%) Impact far below market average: Max. USD 20 m. lost premium for Hannover Re (< 5% of total cat. premium); but new opportunities open up for us Little effect on overall cat. pricing expected as market will generally stick to model pricing plus capital loads Is there a knock-on effect? Other states to follow? NAIC multi-state cat. fund? Decline of cat. rates in other areas? 20

27 HR Overview Multi-Specialist 1 Jan Renewals Outlook Florida OUR VIEW: NEW DYNAMICS FOR FLORIDA CATASTROPHE COVER Hannover Re expecting shift in R/I purchasing: Demand below FHCF (price for 3 bn. xs. 3 bn. 85% RoL not economical) More demand for covers in excess of FHCF for at least up to 1:100y event. FHCF providing cover for up to ~ 50 years. New demand for second-event and LAE covers Unabated demand for commercial-lines covers New demand for FHCF shortfall covers More demand for transformers to capital markets Demand for financially reliable reinsurers (flight to security) 21 And new S&P capital model might reverse trend towards higher retentions

28 HR Overview Multi-Specialist 1 Jan Renewals Outlook HANNOVER RE'S MARKET OUTLOOK Was 2006 the peak of the cycle? Probably yes, as far as the market environment is concerned. However, our rates have reached a very comfortable level! Definitely not in terms of earnings: there is a substantial time lag until a changing market environment translates into the bottom line. 22

29 HR Overview Multi-Specialist 1 Jan Renewals Outlook Hannover Re's overall book of business* SEVEN YEARS OF IMPROVEMENTS SINCE 2000 Even 2007 saw more improvements than deteriorations for Hannover Re's book! 100% Non-proportional 50% 0% -50% -100% % 80% 60% 40% 20% 23 * P/C treaty reinsurance worldwide 0% Improvement Unchanged Deterioration

30 HR Overview Multi-Specialist 1 Jan Renewals Outlook Let's not forget... P/C TIME LAG BETWEEN U/W YEAR & CALENDAR YEAR MEANS: Calendar years 2008/09 will still benefit from today's rate environment HR U.S. professional liability portfolio, where 50% of the u/w-year premium is earned in C/Y 1 40% " C/Y 2 10% " C/Y 3 C a l e n d a r y e a r s u/w years

31 HR Overview Multi-Specialist 1 Jan Renewals Outlook THE $ 64 QUESTION: The question is not: Are the rates going up or down? The only question that matters is: Are rates adequate? 25

32 HR Overview Multi-Specialist 1 Jan Renewals Outlook Aviation XL R/I worldwide ROL STILL ATTRACTIVE in % Hannover Re aviation RoL index 26 40

33 HR Overview Multi-Specialist 1 Jan Renewals Outlook GUIDANCE FOR 2006 AND GWP (NEP) ~ flat (~ flat) Group net earnings (analysts' consensus) EUR 488 m. Group RoE (analysts' consensus) ~17% - 18% Dividend pay-out ratio 35% - 40% Earnings release 14 March GWP (NEP) ~ -10% (~ flat) Group net earnings > 2006 Group RoE at least 15% Dividend pay-out ratio 35% - 40% We expect another good year!* 27 * Subject to large losses within multi-year average and/or no major distortions in capital markets

34 HR Overview Multi-Specialist 1 Jan Renewals Outlook FINANCIAL CALENDAR 8 February 2007 Conference Call on 2007 Renewals 14 March 2007 Press Conference on 2006 Annual Results 15 March 2007 Frankfurt/London Analysts' Meeting 3 May 2007 Annual General Meeting 3 May 2007 Interim Report 1/ June 2007 Investors' Day 3 August 2007 Interim Report 2/ November 2007 Interim Report 3/2007

35 HR Overview Multi-Specialist 1 Jan Renewals Outlook OUR INVESTOR RELATIONS TEAM Hannover Re Karl-Wiechert-Allee Hannover, Germany Tel. + 49/5 11/ (Switchboard) Fax: + 49/5 11/ (direct line) Eric Schuh, CFA Gabriele Bödeker Associate Director Senior IR Manager Corporate Communications Corporate Communications +49/5 11/ /5 11/ eric.schuh@hannover-re.com gabriele.boedeker@hannover-re.com Simone Huch Daniela Gissinger Deputy IR Manager Assistant IR Manager Corporate Communications Corporate Communications +49/5 11/ /511/ simone.huch@hannover-re.com daniela.gissinger@hannover-re.com