Conference Call on Interim Report 3/2008 Wilhelm Zeller, CEO Elke A. König, CFO Hannover, 5 November 2008
Highlights Non-Life R/I Life/Health R/I Investments Targets Outlook Appendix 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.
Highlights Non-Life R/I Life/Health R/I Investments Targets Outlook Appendix Q1-3/2008 Highlights 2008: A LOST YEAR Income statement Group EBIT impacted by capital-market crisis and catastrophe losses EUR 32.5 m. Net income negatively affected by tax charges EUR -142.8 m. Non-Life Reinsurance Decrease in gross written premium (-7.6%) due to discontinuation of Specialty and f/x effects EUR 3,791.9 m. Underwriting result impacted by above-average cat. losses EUR -112.0 m. Combined ratio (incl. interest on funds withheld) 103.6% Life/Health Reinsurance Gross written premium (-0.8%) depressed by f/x effects EUR 2,315.4 m. Reduced EBIT (-55.4%) due to prior year base effect and market valuation of funds withheld EUR 93.2 m. 1
Highlights Non-Life R/I Life/Health R/I Investments Targets Outlook Appendix Q1-3/2008 Highlights 2008: A LOST YEAR (CONT'D) Balance sheet Very positive cash flow Recovery of USD in Q3/2008 with positive effect on invested assets Shareholders' equity and book value per share reflecting capital-market turmoil Disappointing RoE in m. EUR 31 Dec 07 Variance 30 Sep 08 Operating cash flow (y-o-y) 446 +167.9% 1,195 Invested assets under own mgmt. 19,815 +0.6% 19,927 Shareholders' equity 3,349-22.0% 2,613 - Book value per share 27.77-22.0% 21.67 - Return on equity (annualised) 23.5% - (6.4%) Policyholders' surplus* 5,295-15.0% 4,503 2 * Shareholders' equity + minorities + hybrid capital
Highlights Non-Life R/I Life/Health R/I Investments Targets Outlook Appendix Group figures at a glance CAPITAL MARKET TURMOIL TAKES ITS TOLL Significant write-downs on equities 2007 2008 in m. EUR Q1-3 1H Q3 YTD Variance Gross written premium 6,426 4,145 1,961 6,106-5.0% Net premium earned 5,491 3,415 1,746 5,162-6.0% Net underwriting result (128) (36) (196) (232) +81.6% - Net underwriting result incl. funds withheld 39 66 (136) (70) -281.9% Net investment income 855 445 (75) 370-56.7% - From assets under own management 689 343 (134) 209-69.7% - From funds withheld 167 102 59 162-2.9% Other income and expenses (49) (9) (97) (106) +114.2% Operating profit/loss (EBIT) 678 400 (368) 33-95.2% Interest on hybrid capital (58) (39) (19) (58) -0.2% Net income before taxes 620 362 (387) (25) -104.1% Taxes 3 (99) (16) (114) - Net income from continuing operations 623 263 (403) (140) -122.4% Net income from discontinuing operations 30 0 0 0 - Net income 654 263 (403) (140) -121.4% - Minority interest 76 11 (8) 3-96.1% - Group net income 577 252 (395) (143) -124.7% Retention 86.4% 89.5% 87.2% 88.8% Combined ratio (incl. interest on funds withheld) 99.3% 98.1% 107.8% 101.4% EBIT margin (EBIT/Net premium earned) 12.4% 11.7% (21.1%) 0.6% Tax ratio (0.5%) 27.3% (4.0%) (450.2%) Earnings per share 4.79 2.09 (3.27) (1.18) 3
Highlights Non-Life R/I Life/Health R/I Investments Targets Outlook Appendix Group figures at a glance NORMALISED EBIT DESPITE "IKE" ON SATISFYING LEVEL in m. EUR (41) 101 (13) (49) Q1-3/2007 39 642 640 678 U/W result Q1-3/2007 1) Ordinary inv. 2) income Inv. expenses Normalised EBIT Un-/realised gains & losses Depreciation/ impairments Other income & expenses EBIT Q1-3/2007 (34) 44 Q1-3/2008 (70) 632 528 (433) (106) 33 U/W result Q1-3/2008 1) Ordinary inv. 2) income Inv. expenses Normalised EBIT Un-/realised gains & losses Depreciation/ impairments Other income & expenses EBIT Q1-3/2008 4 1) Including interest on funds withheld 2) Including profit and loss from associated companies
Highlights Non-Life R/I Life/Health R/I Investments Targets Outlook Appendix P/L figures at a glance UNDERWRITING RESULT IMPACTED BY "IKE" & OTHERS Net investment income hit by impairments 2007 2008 in m. EUR Q1-3 1H Q3 YTD Variance Gross written premium 4,102 2,656 1,136 3,792-7.6% Net premium earned 3,391 2,083 1,021 3,103-8.5% Net underwriting result (50) 24 (155) (131) +160.9% - Net underwriting result incl. funds withheld (29) 33 (145) (112) +280.1% Net investment income 586 270 (127) 143-75.6% - From assets under own management 565 261 (137) 124-78.1% - From funds withheld 21 9 10 19-7.7% Other income and expenses (93) (6) (92) (98) +4.7% Operating profit/loss (EBIT) 442 288 (374) (86) -119.4% Interest on hybrid capital 0 0 0 0 - Net income before taxes 442 288 (374) (86) -119.4% Taxes (17) (86) (8) (94) +464.6% Net income from continuing operations 425 202 (382) (180) -142.4% Net income from discontinued operations 14 0 0 0 - Net income 439 202 (382) (180) -141.1% - Minority interest 56 6 (8) (2) -104.2% - Group net income 383 196 (374) (178) -146.5% Retention 83.9% 89.4% 86.1% 88.4% Combined ratio (incl. interest on funds withheld) 100.9% 98.4% 114.2% 103.6% EBIT margin (EBIT/Net premium earned) 13.0% 13.8% (36.7%) (2.8%) Tax ratio 3.8% 30.0% (2.1%) (109.7%) Earnings per share 3.17 1.62 (3.10) (1.48) 5
Highlights Non-Life R/I Life/Health R/I Investments Targets Outlook Appendix Catastrophe losses 1) MAJOR LOSSES ABOVE CATASTROPHE BUDGET in m. EUR 1,775 775 2,373 1,070 665 606 497 135 240 472 181 164 238 370 277 225 377 311 281 314 83 60 378 121 107 410 360 310 285 445 1999 2000 2001 2002 2003 2004 2005 2006 2007 Q1-3/2008 Large losses 2) 11% 8% 19% 4% 1% 10% 34% 2% 8% 16% 9% 5% 14% 4% 1% 7% 20% 2% 6% 14% Gross Net Catastrophe budget 3) 6 1) Claims over EUR 5 m. gross 2) As % of Non-Life premium (1999-2006 adjusted to new segmentation) 3) 1999-2004 = 5%, 2005 = 6%, 2006-2007 = 8%, from 2008 = 10% of Non-Life net premium earned
Highlights Non-Life R/I Life/Health R/I Investments Targets Outlook Appendix 2008 catastrophe losses* 2008 HIT BY FREQUENCY AND SEVERITY "Ike", but also several smaller losses in m. EUR Non-Life Reinsurance Catastrophe loss Date Gross Net Snow and ice storm China 10 Jan - 15 Feb 17.6 17.6 Flood Queensland 16-20 Jan 6.8 4.4 Flood Queensland 12-16 Feb 6.7 4.3 Winterstorm "Emma" 1-2 Mar 26.2 21.2 Earthquake Sichuan, China 12 May 19.8 19.8 Hailstorm "Hilal", Germany 28 May - 3 Jun 48.4 47.9 Flood USA 28 May - 20 Jun 8.5 5.4 Hailstorms Germany 22-23 Jun 16.5 16.4 Hurricane "Gustav" 29 Aug - 2 Sep 42.8 31.6 Hurricane "Ike" 4-12 Sep 349.4 220.9 10 Natural catastrophes 542.7 389.5 3 Aviation/Marine claims 17.1 14.7 1 Fraud claim 6.3 6.3 6 Fire claims 40.2 34.4 20 Major losses 606.3 444.9 7 * Claims over EUR 5 m. gross
Highlights Non-Life R/I Life/Health R/I Investments Targets Outlook Appendix P/L figures at a glance GROSS WRITTEN PREMIUM DEPRESSED BY F/X EFFECTS Slow-down in UK mortgage market 2007 2008 in m. EUR Q1-3 1H Q3 YTD Variance Gross written premium 2,334 1,490 825 2,315-0.8% Net premium earned 2,100 1,333 726 2,059-2.0% Net underwriting result (86) (64) (44) (108) +25.0% - Net underwriting result incl. funds withheld 59 29 6 34-41.9% Net investment income 239 155 51 206-13.8% - From assets under own management 93 62 2 64-31.8% - From funds withheld 146 93 50 143-2.2% Other income and expenses 56 (3) (2) (5) - Operating profit/loss (EBIT) 209 87 6 93-55.4% Interest on hybrid capital (0) 0 0 0 - Net income before taxes 209 87 6 93-55.4% Taxes 14 (18) (9) (26) -291.1% Net income 223 69 (3) 67-70.0% - Minority interest 20 4 1 5-73.7% - Group net income 203 65 (4) 61-69.7% Retention 90.5% 89.6% 88.8% 89.3% Combined ratio (incl. interest on funds withheld) 97.2% 97.8% 99.2% 98.3% EBIT margin (EBIT/Net premium earned) 9.9% 6.5% 0.8% 4.5% Tax ratio (6.6%) 20.4% 145.8% 28.4% Earnings per share 1.68 0.54 (0.03) 0.51 8
Highlights Non-Life R/I Life/Health R/I Investments Targets Outlook Appendix Capital markets turmoil SIGNIFICANT STEPS TAKEN TOWARD RISK REDUCTION......driven by considerations on capital and protection 250 Credit Index Financial Asset Swap Spread Euro STOXX 5.000 11/2006 Sale of U.S. real estate 200 4.500 12/2007 Termination of security lending 150 4.000 3.500 04/2008 Hedged equity exposure partially 100 50 0 Q3/2007 Q4/2007 Q1/2008 Q2/2008 Q3/2008 Q4/2008 3.000 2.500 2.000 09/2008 Further tightened issuer limits, tightened reinvestment spectrum 10/2008 Sale of unhedged equities No material ABS/MBS exposure (other than covered bonds) No "hidden" capital market or liquidity risks Built up liquidity via cash and liquid assets (EUR 4.6 bn.) No refinancing needs in 2008 and 2009 94
Highlights Non-Life R/I Life/Health R/I Investments Targets Outlook Appendix Investment income CAPITAL MARKET TURMOIL RESULTING IN WRITE-DOWNS Stable ordinary investment income in m. EUR Q1-3/2007 Variance Q1-3/2008 Ordinary investment income 1) 642-1.5% 632 Realised gains/losses 104-26.1% 77 Impairments (13) - (433) Unrealised gains/losses (trading) (3) - (33) Investment expenses 2) (41) -16.5% (34) NII from assets under own management 689-69.7% 209 NII from funds withheld 167-2.7% 162 Total investment income 855-56.7% 370 10 1) Incl. results from associated companies 2) Incl. depreciation/impairments on real estate
Highlights Non-Life R/I Life/Health R/I Investments Targets Outlook Appendix Investment income SIGNIFICANT EQUITY SALES IN OCTOBER Reduced risk in exchange for additional realisations Gradual stop-loss triggers were set based on capital considerations at DAX 30 reference levels of 5,000, 4,750 and 4,500 DAX 6,000 5,500 Euro STOXX 3,100 Average closing level (appr.) at 4,780 2,900 (DAX) and 2,470 (EURO STOXX) 2,700 Triggers were completely executed within the week of 8 October 5,000 4,500 2,500 2,300 Sale of ca. EUR 1 bn. equities (= unhedged parts of the portfolio) Loss of EUR 206 m. from sale in 10/2008 2,100 4,000 1,900 3,500 1,700 1 Oct 7 Oct 13 Oct 17 Oct 23 Oct 29 Oct DAX DAX (and VW with constant Beta) Euro STOXX 11
Highlights Non-Life R/I Life/Health R/I Investments Targets Outlook Appendix Stress tests EQUITY EXPOSURE CLOSE TO ELIMINATED Portfolio Scenario as of 30 Sep Change in market value incl. hedge in m. EUR as of 31 Oct (est.) Equities* Prices -10% -124-4 Equities* Prices -20% -244-6 Equities* Prices -30% -362-8 Fixed-income securities Yield increase +50 bps -303-342 Fixed-income securities Yield decline -50 bps 295 336 Unrealised gains (losses) (Available for sale) 31 Dec 07 30 Sep 08 31 Oct 08 (est.) Fixed income (103) (284) (307) Equities 191 7 (51) Total unrealised gains (losses) 88 (277) (358) 12 * Euro STOXX 50: 3.038 as of 30 September 2008
Highlights Non-Life R/I Life/Health R/I Investments Targets Outlook Appendix TARGET MATRIX Targets 2008 Historical data 1) Business Group Key figures 2008 Q1-3 2007 2006 2005 Non-Life R/I Gross-premium growth none (7.6%) (20.1%) (5.8%) (6.7%) Combined ratio - assuming a 100% 2) 103.6% 99.7% 100.8% 110.3% net cat.-loss ratio (natural & man-made) up to 10% 14.3% 6.3% 2.3% 20.4% EBIT margin 3) 12.5% (2.8%) 14.8% 14.2% (0.0%) EBIT growth 10% (119.4%) (0.4%) n.m. (100.3%) xroca 4) 5% n.a. 3.2% 4.4% (1.9%) Life/Health R/I Gross-premium growth 12-15% 5) (0.8%) 10.4% 15.2% 11.4% EBIT margin 3) 6.5-7.5% 4.5% 8.3% 5.9% 4.1% EBIT growth 12-15% (55.4%) 65.4% 49.8% 21.4% xroca 4) 10% n.a. 28.8% 40.1% 35.7% Group Return on investments 6) 4.8% 1.4% 4.6% 5.0% 4.4% Return on equity (annualised) 11.4% 7) (6.4%) 18.2% + 5.3% 18.7% 1.9% Spread over risk free 750 bps -1032 bps 1958 bps 1469 bps -230 bps EBIT growth 10% (95.2%) 14.6% 795.0% (82.9%) Triple-10 targets Earnings per share growth 10% (124.7%) 8) 10.6% 942.7% (82.4%) Book value per share growth 10% (22.0%) 15.6% 11.4% 3.0% 13 1) Non-Life R/I: 2005 own calculation, incl. consolidation 2) Max. tolerable combined ratio = net premium earned + [(invested P/C assets * sustainable yield) pre-tax cost of capital] i.e. 100% + [(~ 307% * 3.4%) - (~ 96% * 7.3%)] = ~ 103.4% 3) EBIT/Net premium earned 4) xroca = Excess return on capital allocated = IVC/Capital allocated 5) At constant f/x rates 6) Assets under own management 7) 5-year average government-bond yield = 3.9% + 750 bps 8) Excluding one-off tax effect n.a. = not available n.m. = not meaningful
Outlook on 2008
Highlights Non-Life R/I Life/Health R/I Investments Targets Outlook Appendix GUIDANCE FOR 2008 Hannover Re Group Gross written premium (GWP) ±0% Net premium earned (NPE) ±0% Non-Life R/I (NPE) -2% L/H R/I (NPE) +5% Q4/2008: break-even result after tax attainable (provided normal catastrophe loss experience) 14
Appendix
Highlights Non-Life R/I Life/Health R/I Investments Targets Outlook Appendix OUR STRATEGIC BUSINESS GROUPS AT A GLANCE Non-Life R/I Life/Health R/I Consolidation Total in m. EUR Q1-3/2007 Q1-3/2008 Q1-3/2007 Q1-3/2008 Q1-3/2007 Q1-3/2008 Q1-3/2007 Q1-3/2008 Gross written premium 4,102 3,792 2,334 2,315 (10) (1) 6,426 6,106 Change in GWP - -7.6% - -0.8% - -85.9% - -5.0% Net premium earned 3,391 3,103 2,100 2,059 0 0 5,491 5,162 Net underwriting result (50) (131) (86) (108) 9 7 (128) (232) - Net underwriting result incl. funds withheld (29) (112) 59 34 9 7 39 (70) Net investment income 586 143 239 206 30 21 855 370 - From assets u. own mgmt 565 124 93 64 30 21 689 209 - From funds withheld 21 19 146 143 (0) 0 167 162 Other income and expenses (93) (98) 56 (5) (12) (3) (49) (106) Operating profit/loss (EBIT) 442 (86) 209 93 27 25 678 33 Interest on hybrid capital 0 0 (0) 0 (58) (58) (58) (58) Net income before taxes 442 (86) 209 93 (31) (33) 620 (25) Taxes (17) (94) 14 (26) 6 6 3 (114) Net income from continuing operations 425 (180) 223 67 (25) (26) 623 (140) Net income from discontinued operations 14 0 0 0 17 0 30 0 Net income 439 (180) 223 67 (8) (26) 654 (140) - Minority interest 56 (2) 20 5 0 0 76 3 - Group net income 383 (178) 203 61 (8) (26) 577 (143) Retention 83.9% 88.4% 90.5% 89.3% 86.4% 88.8% Combined ratio (incl. interest on funds withheld) 100.9% 103.6% 97.2% 98.3% 99.3% 101.4% EBIT margin (EBIT/Net premium earned) 13.0% (2.8%) 9.9% 4.5% 12.4% 0.6% I
Highlights Non-Life R/I Life/Health R/I Investments Targets Outlook Appendix Tactical asset allocation CONSERVATIVE APPROACH UNCHANGED Focus on liquidity in fixed income Investment category 2004 2005 2006 2007 30 Sep 08 31 Oct 08 (est.) Fixed-income securities 81% 82% 82% 79% 81% 87% Governmentals 25% 26% 21% 19% 21% 26% Semi-governmentals 21% 20% 21% 20% 21% 21% Corporates 26% 26% 27% 26% 24% 24% Investment grade 25% 24% 25% 24% 22% 22% Non-inv. grade 1% 2% 2% 2% 2% 2% Covered Bonds/ABS/MBS 10% 10% 13% 15% 15% 15% Equities 8% 8% 10% 12% 10% 4% Listed 7% 6% 8% 10% 8% 1% Private equity* 2% 2% 2% 2% 3% 3% Real estate 1% 1% < 1% < 1% < 1% < 1% Others 3% 4% 2% 2% 2% 2% Short-term investments & cash 6% 6% 6% 6% 6% 6% Total investments under mgmt. in bn. EUR 16.1 19.1 19.5 19.8 19.8 19.6 II * Without outstanding commitments of EUR 235.2 m. in 2007 and EUR 237.1 m. as of 30 September 2008
Highlights Non-Life R/I Life/Health R/I Investments Targets Outlook Appendix Fixed-income portfolio OVERALL RATINGS HARDLY EFFECTED BY DOWNGRADES Slight shortening reflects shift towards liquidity 9,000 in m. EUR 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2004 2005 2006 2007 30 Sep 08 AAA AA A BBB <BBB Modified duration 3.6 (3.8) and average rating AA- (AA-) as of 30 Sep 2008 (31 Oct est.) III S&P financial strength rating
Highlights Non-Life R/I Life/Health R/I Investments Targets Outlook Appendix Asset classes SUBSTANTIAL EQUITY IMPAIRMENTS Broad diversification of fixed-income sector shielded us from defaults Q1-3/2007 Q1-3/2008 in m. EUR Realised gains/losses Impairments Realised gains/losses Impairments Fixed-income securities (25) (5) 64 (77) Equities 97 (8) (9) (355) Other 32-21 - Total 104 (13) 77 (433) Fixed-income impairments YTD in m. EUR ABS/MBS (34.8) Lehman Brothers (17.8) Fixed Income Loan Funds (8.1) Washington Mutual (6.0) Bradford & Bingley (1.7) Other (8.8) Total (77.3) Equity impairments per currency EUR 82% USD 17% Others 1% Total 100% IV
Highlights Non-Life R/I Life/Health R/I Investments Targets Outlook Appendix Asset allocation WELL-BALANCED PORTFOLIO Majority of ABS/MBS are covered bonds Corporates 24% Equities (incl. private equity) 10% Real estate <1% Others 2% Short-term investments & cash 6% Covered Bonds/ABS/ MBS 15% Pfandbriefe, Covered Bonds -underlying Mortgages/Real Estate 37% Prime RMBS 4% CMBS 6% CDOs 3% Subprime RMBS 1% Semi- Governments 21% EUR 19,832 m.* Governments 21% Pfandbriefe, Covered Bonds -underlying (Semi) Government 48% EUR 2,962 m.* Others (ABS of Utility, Credit Card, Car Loan) 1% Since 30 September significant reduction of equity exposure (approx. EUR 1,000 m.) Equity quota (incl. private equity) lowered to 4% (approx. 1% listed) No significant changes to covered bonds/abs/mbs allocation V * Market value as of 30 September 2008
Highlights Non-Life R/I Life/Health R/I Investments Targets Outlook Appendix Asset allocation CORPORATE SECTOR ALLOCATION Reflects market spectrum Others 7.3% Others 1.3% Insurance 20.6% Industrials 39.1% Financials 53.6% Publicly guaranteed 6.4% Banks covering all activities 45.3% Investment banks 11.6% Special banks 14.8% EUR 4,798 m.* EUR 2,570 m.* "Financials" are held in the following currencies: EUR 63%, USD 16%, GBP 9% and others 13% VI * Market value as of 30 September 2008
Highlights Non-Life R/I Life/Health R/I Investments Targets Outlook Appendix Asset allocation CORPORATES BY CURRENCY AND RATING Reflecting asset liability management (ALM) needs as well as market spectrum EUR Corporates USD Corporates Other Currencies Corporates BBB 18% <BBB 10% AAA 0.4% AA 18% <BBB 23% AAA 4% 4% AA 21% A 26% BBB 1.1% <BBB 0.7% AAA 18% 18% BBB 11% A 54% A 41% AA 54% EUR 2,461 m.* EUR 1,519 m.* EUR 793 m.* Broad portfolio diversification across the single-issuer spectrum USD-portfolio with better quality driven by Mastertrust requirements VII * Market value as of 30 September 2008
Highlights Non-Life R/I Life/Health R/I Investments Targets Outlook Appendix Asset allocation LIMITED EXPOSURE TO STRUCTURED FIXED INCOME Weight on floating rate notes Structured product in m. EUR Floater 218.5 Callables/Putables 109.4 CDOs 34.9 Convertibles 28.5 Cat. bonds 25.5 Other 75.2 Total 492.0 CDOs 7% Other 15% Convertibles 6% Cat. bonds 5% Callables/ Putables 22% Floater 45% VIII