-- Hannover Re posts 13% decline in second-quarter net
profit
-- Shares down as investors focus on worse-than-forecast hit
from derivatives development
-- No profit guidance due to parent's potential IPO plans;
Analyst estimates not denied
(Adds detail throughout.)
By Ulrike Dauer
FRANKFURT--Germany's Hannover Re AG (HNR1.XE) Friday reported a
13% decline in net profit for the second quarter, as a lower
contribution from investments and a substantially higher tax rate
more than offset moderate disaster claims and higher premium
volume.
The shares fell in early trade as investors focused on the net
and operating profit and the investment-income miss compared with
forecasts. This, however, was attributed to a higher-than-forecast
EUR79 million fair-value hit from two derivatives--inflation swaps
and so-called "modified coinsurance derivatives"--due to changed
inflation expectations and widened corporate bond spreads.
At 1030 GMT, the shares were down 1.3%, or EUR2.68, at EUR48.16,
off intraday lows, but still underperforming the wider market. The
shares have gained 60% over the past year.
The company, which is one of the three biggest reinsurers in the
world by gross premium income, still didn't provide full-year net
profit guidance, though it reiterated it expects "a good result for
the full 2012 financial year," considering "continuing attractive
market opportunities" and "the gratifying" net profit after the
first six months.
Since the beginning of the year, Hannover Re's 50.2% parent
Talanx AG has requested that the reinsurer refrain from giving a
net profit forecast ahead of a decision by Talanx as to whether it
will conduct an initial public offering of itself later this
year.
Chief Financial Officer Roland Vogel, in a conference call,
declined to give a concrete profit guidance, but also said he
"wouldn't deny analyst estimates of a full-year net profit between
EUR700 million and EUR750 million," considering EUR405.3 million
reached after the first six months.
He also said if Talanx were ready for an IPO in the first half,
"why wouldn't it be similarly ready in the second half if markets
stabilize and investor appetite" returns.
A Talanx spokesman said that "we're monitoring the markets," but
declined to comment further. Talanx, which will report
second-quarter earnings Tuesday, in March mandated JP Morgan Chase
and Citigroup Inc. (C) to help with the planned IPO, people close
to the matter said. Initially, investment bank Rothschild was
appointed to advise on a potential IPO, and Deutsche Bank AG (DB)
was named to lead manage it, signaling progress in plans that
Talanx has been discussing for more than a decade.
Hannover Re did confirm all its other 2012 earnings targets,
saying it aims for a 5%-7% rise in gross premium revenue, a 3.5%
return on investments and a dividend payout ratio of 35%-40%.
Net profit fell to EUR144.0 million from EUR166.2 million a year
earlier, shy of the EUR157 million average consensus in a Dow Jones
Newswires poll. Gross premium revenue was up 16% at EUR3.38
billion, above the forecast EUR3.22 billion.
Quarterly tax rate was 18.1%, up from 2.5% a year ago, when it
benefited from a tax-free profit at the Bermuda operations and a
tax refund, among others.
Several analysts pointed out that Hannover Re was able to push
for higher rate rises than peers in the July contract renewals,
where it achieved average 4% rate increases, compared with Munich
Re AG's (MUV2.XE) 2%, and the 3% achieved by Swiss Re AG (SREN.VX)
and Scor SE (SCR.FR). Mr. Vogel conceded, however, that rate rise
have slowed, in line with comments Munich Re made this week when it
said that rate hikes are limited to disaster-hit areas, while the
overall "hardening of the market" across all sectors shouldn't be
expected any more.
Reinsurers have been spared high costs for major disasters, as
the few midsize weather events this year are predominantly covered
by primary insurers, rather than the big reinsurers, which insurers
use as a backstop for higher risks.
In the quarter, Hannover Re's costs for major claims were
ERU73.6 million, of which EUR60.6 million went for the earthquakes
in Italy in May, and EUR13 million for a fire in Japan. To date,
Hannover Re has used up EUR132 million of its EUR560 million 2012
budget for major claims. Last year at this time, reinsurers' annual
claims budgets had already been used up after the first
quarter.
-Write to Ulrike Dauer at ulrike.dauer@dowjones.com
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