Summing up, I would like to reiterate that your company derived the maximum benefit from the strong market upturn during the renewal season for 2002; it improved its market share and hence also its position in the global market, and – most notably – it enhanced the profitability of its business. Assuming that the loss experience and capital markets develop along normal lines, this should enable us in the current financial year to build on the previous year's performance and thus achieve a very good result.
Dr. Paul Wieandt Chairman of the Executive Board Hof/Saale of SchmidtBank GmbH & Co. KGaA Deputy Chairman
The performance of our share was volatile over the course of the year. Benefiting from tax reform and the launch of the "Riester" pension, it entered the new year on a bright note at EUR 93 and outperformed the leading benchmark indices. In late January it even broke through the triple-digit mark, posting its high for the year of EUR 103.70 on 1 February 2001. Only towards the end of the first quarter did a negative undercurrent begin to take hold of the capital markets. However, by the middle of the year our share had again succeeded in breaking free. Reaching EUR 95, it even surpassed its initial price at the beginning of the year anew. Our share was disproportionately hard hit by the terrorist attacks of 11 September in the USA, not least due to the small free float, and within ten days it had lost more than half of its market value. On 21 September 2001, it fell to EUR 38.51 in intraday trading, its lowest point since mid-1997. Compared to the heavyweights of the leading indices our share was slow to recover and by year-end it still fell short of its starting price in 2001. Nevertheless, through our proactive, intensive and transparent communication in response to the events of 11 September and due to the favourable outlook for the future development of our business, we succeeded in restoring investor confidence in our share. It closed the year down 27% at EUR 67.80, a performance which approximately reflected the development of the Dax and CDax benchmark indices.
Furthermore, we have consistently demonstrated over the years our ability to sensibly and in EUR
As part of our Investor Relations programme we have also initiated an analysts' seminar, which was held for the first time in 2000 in Hannover. Due to the superb response and heavy demand for this event, the annual organisation of such a seminar covering selected topics in the reinsurance sector now forms part of our standard Investor Relations repertoire. Led by reinsurance specialists from within our company, the seminar is aimed at financial analysts and institutional investors who already have close familiarity with Hannover Re but wish to obtain deeper insights into specialist issues affecting individual business segments. In March 2001 – in
The internet has now evolved into the most up-to-date, quickest and hence one of the most important information tools at the disposal of listed companies. We take full account of this trend through our extensive and constantly updated Investor Relations website. Our annual financial statements are available here in all digital formats, including an interactive HTML report. In addition to our annual report, we also use video clips of our analysts' conferences as well as online teleconferences to convey information. Our Internet site also provides com-
"Overall, Hannover Re can be credited with very good management in the allocation of available capital. Clear targets and transparency are the hallmarks of the system implemented in recent years, and they promote the generation of shareholder value. Good Asset/Liability Management rounds off the management systems and provides additional flexibility".
"Due to its anticyclical underwriting policy Hannover Re is likely to profit disproportionately strongly from the turnaround".
"Capital management is best-in-class and transparency is exemplary. [...] We think the company is well-positioned and is an attractive alternative ".
The terrorist attacks triggered a debate about the coverage of terrorism risks. In the US market, a general exclusion was implemented with regard to coverage for terrorism risks even before the end of 2001 (with the exception of private customer business). Attempts to create a state-supported pool solution for terrorism covers proved unsuccessful. This led to the launch of private-sector coverage aimed solely at terrorism risks. We already began to participate in such policies in the year under review and assumed a leading role in this segment on the reinsurance market.
In general terms, credit and surety insurance was overshadowed by the sharp downturn in the economy. High insolvency figures worldwide also led to heavy loss burdens for primary insurers. This, in turn, prompted insurers to take drastic remedial action and caused competition to decline in the year under review. The situation on the primary markets was ultimately reflected in the predominance of quota share cessions in the reinsurance sector.
Particularly in the USA and Western Europe, the high level of bankruptcies attributable to the flagging economy placed a heavy strain on the reinsurance industry. Reinsurers similarly restructured their portfolios, and the competitive pressure in this market eased.
The net income before taxes reached EUR 44.4 million – an increase of 43.8% on the previous year.
The Australian and New Zealand markets are served by our subsidiary Hannover Life Re
In the year under review we strengthened our position as number two in the market and enhanced our reputation in South Africa as a clientoriented life reinsurer. The expansion of several major accounts enabled us to generate sizeable gross premiums of ZAR 878.3 million (EUR 113.5 million), an increase of 45.4%.
In business involving semi-privatised, socalled "Riester" pension products we succeeded in acquiring two sizeable financing relationships with life insurers in the bancassurance sector. These came into force on 1 January 2002.
Our branch office in Stockholm, which wrote a premium volume of EUR 49 million, is assigned responsibility for the Scandinavian markets as well as the countries of eastern Europe and the eastern Mediterranean. Due to the unsatisfactory performance of Swedish group life business in the year under review, the result was marginally negative.
"It was always a dreamjob for me to be a pilot and still is. Despite that it was an event of major significance, which will change flying. [....] We all have to cope with it, because none of us will ever forget these images, as long as we live. [...] What was in good order and controllable, will not exist anymore."
The composition of our portfolio is heavily dominated by US business. Growth in the USA was more vigorous than in other markets, and the share of US business consequently continued to grow disproportionately. Nevertheless, increasing demand for alternative coverages can also be observed in other markets. In the medium term our strategy is geared to greater geographical diversification of the portfolio. We also take account of our own security requirements by striving to ensure a balance of higher- and lower-risk business. Our products thus range from more traditional quota share reinsurance treaties to extremely complex transactions based on actuarial simulations.
We are currently developing a marketing concept for the entire strategic segment of financial reinsurance, which will enable us to increasingly tap into the potential for business outside the United States. With the aid of this integrated marketing concept we shall strive in the future to generate interest in financial rein-
– to the high inflow of liquidity from the technical account, the subordinated loan of EUR 350 million, which we issued at the beginning of the year, and the capital increase of almost EUR 200 million implemented just prior to year-end.
The marked decline in stock prices in the financial year just-ended was accompanied by corresponding implications for the total volume of unrealised valuation reserves remaining as at year-end. While unrealised price gains in the portfolio of fixed-income securities decreased slightly to EUR 85.9 million, the valuation reserves in our equity portfolio shrank appreciably to -EUR 35.5 million. This contrasted with higher realised price gains from active portfolio management. On balance, therefore, unrealised price gains stood at
Reduction of our equity allocation to 8.5% as at year-end 2001
In recent years more than 80% of our retrocessionaires on average have received a so-called investment grade rating – the vast majority of them being rated A or better. In this context it should, however, be added that the other retrocessionaires are not all rated as sub-investment grade; many of them do not have a rating because they transact only a minimal volume of reinsurance or have discontinued such business.
Significant market hardening a feature of property and casualty reinsurance flowed out of the worldwide reinsurance industry in the year under review. Even after taking into account various capital increases and new company start-ups, it is evident that substantial capacity was lost in the year under review.
We also anticipate a reduction of the risk under terrorism covers; risks, which in the past had been included more or less at no extra premium generated considerable additional income in the wake of the events of 11 September. The attacks in the USA led to the creation of special terrorism policies in a form that had not previously existed.
Significant rate increases and improvements in conditions during the 2002 renewals were even recorded in lines which were entirely unaffected by the terrorist attacks. In US liability business, for example, where the market had been unattractive for a number of years, the renewal of our portfolio generated very marked premium increases.
We shall continue to concentrate on our core markets in Germany, the United Kingdom, France, Italy, the USA, South Africa, Malaysia, Australia and China. In the future too we shall devote our primary attention to the non-traditional business model of financing transactions
Policy benefits for life and health contracts 5.2 3 908 584 3 043 573
Changes in claims reserves (net) 2 695 687 1 023 537
Change in policy benefits for life and health contracts – – (297 973) (37 494)
Reserve as at 31 December of year under review (net) 12 100 916 9 250 020
On 1 April 1993 (1 June 1993 in the case of managerial staff) the 1993 pension plan came into effect. This pension plan provides for retirement, disability and surviving dependants' benefits. The scheme is based upon annual determination of the pension contributions. At 1% up to the assessment limit in the statutory pension insurance scheme and 2.5% above the assessment limit of the pensionable employment income they are calculated in a range of 0.7% to 1% and 1.75% to 2.5%, respectively, depending upon the company's performance. The pension plan closed as at 31 March 1999.
In addition, authorised but unissued capital of EUR 12.7 million is available until 1 July 2004.
All transactions were effected at normal market conditions. We gave an account of these transactions with regard to Hannover Re and E+S Rück in our dependent company report.
No new stock options were granted in the year under review.
In connection with the acquisition of Lion Insurance Company, Trenton/USA by Hannover Finance Inc., Wilmington/USA – a subsidiary of Hannover Re – a legal dispute exists with the former owners of Lion Insurance Company regarding the release of a portion of the purchase price at that time, which is held in trust.
Breakdown of nominal amounts by product type and period to maturity total years more than 5 years months months less than 3 months
Operating leasing contracts produced expenditures of EUR 5,042 thousand in the 2001 financial year.
Cession: transfer of a risk from the direct insurer to the reinsurer.
Insured loss: the insured loss reflects the total amount of losses.
Price earnings ratio (PER): ratio between the market value of a share and the earnings per share of the public limited company.