Hannover Rueck SE · XETR:HNR1
Hannover Rueck — Hannover Re — Merrill Lynch Banking & Insurance CEO Conference 2006
36 slides from Hannover Rueck's conference presentation, Oct 5, 2006
Slide 1: Risk, Return & Growth - Getting the Balance Right
Risk, Return & Growth - Getting the Balance Right Elke A. König Member of the Executive Board Merrill Lynch – Banking & Insurance CEO Conference ® London, 5 October 2006 hannover re
Slide 2: Disclaimer
Overview Risk Return/Growth 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
Slide 3: We are among the top reinsurers in the world
Overview Overview Risk Return/Growth Outlook League table (premium) WE ARE AMONG THE TOP REINSURERS IN THE WORLD (2005 figures in million USD1)) Rank Group Country GWP NPW 1 Munich Re D 26,482 22,606 2 Swiss Re CH 23,151 21,229 3 Berkshire Hathaway2) USA 12,486 11,646 4 Hannover Re D 11,452 9,166 5
Slide 4: Unique group structure
Overview Overview Risk Return/Growth Outlook UNIQUE GROUP STRUCTURE Majority owner, but operational and financial independence Talanx AG* Free Float 50.2% 49.8% hannover re ® 55.8% 8 German 42.7% Mutuals >100 Subsidiaries, e+s rück Branch/Rep. Offices in 18 countries Others 1.5% German Business Inte
Slide 5: Strong premium growth
Overview Overview Risk Return/Growth Outlook Top line STRONG PREMIUM GROWTH Gross and net premium tripled within 10 years 12,500 in m. EUR 12,463 11,507 11,343 10,000 9,567 9,669 8,320 8,156 7,688 7,739 7,575 7,500 6,706 6,496 5,210 5,000 4,505 3,960 4,180 3,272 3,338 3,549 2,569 2,500 ,0 1996 1997
Slide 6: Over ten years minimum target overachieved
Overview Overview Risk Return/Growth Outlook Profitability OVER TEN YEARS MINIMUM TARGET OVERACHIEVED Despite "WTC" and "KRW" 18.0% 26.0% 18% 17.1% 17.1% 15.9% 15.7% 14.3% 13.9% 14.0% 13.8% 13.5% 13.1% 12.7% 12.5% 12.3% 12.8% 12.2% 12.1% 11.5% 11.7% 9% 1.9% 0.7% 0% 5 96 97 98 99 00 01 02 03 04 05 -0
Slide 7: HNR1 consistently among most profitable reinsurers
Overview Overview Risk Return/Growth Outlook RoE league table HNR1 CONSISTENTLY AMONG MOST PROFITABLE REINSURERS 2001 2002 2003 2004 20051) 2001 - 2005 Company avg.- RoE Rank RoE Rank RoE Rank RoE Rank RoE Rank Rank RoE Renaissance Re 18% 1 26% 1 31% 1 5% 10 (11%) 9 14% 1 Hannover Re 1% 3 16% 3 18%
Slide 8: Hannover Re's philosophy: focus on profitability
Overview Overview Risk Return/Growth Outlook Our view on risk, return and growth in a nutshell HANNOVER RE'S PHILOSOPHY: FOCUS ON PROFITABILITY. . . . . .at a pre-defined level of risk Æ Our aim: Being one of the best (= most profitable) reinsurers • Profitability targets only, no volume targets Æ O
Slide 9: Risk vs. Return/Growth
Risk vs. Return/Growth - Getting the Balance Right ® hannover re
Slide 10: We like risk but at risk adequate prices
Overview Risk Return/Growth Outlook Risk appetite WE LIKE RISK BUT AT RISK ADEQUATE PRICES Æ We like risk but pricing and terms and conditions must adequately reflect the exposure • Growth in attractive market environment only Æ We are a dedicated P/C-catastrophe writer • But: Catastrophe business i
Slide 11: Centralised group risk management at Hannover Re
Overview Risk Risk Return/Growth Outlook Risk management tools CENTRALISED GROUP RISK MANAGEMENT AT HANNOVER RE We have a centralised approach to. . . Æ Reserve monitoring Æ Aggregate control Æ Dynamic Financial Analysis (DFA) • Diversification • Optimal asset allocation • Risk appetite and risk mit
Slide 12: Reserves = our most important and best-managed risk
Overview Risk Risk Return/Growth Outlook Reserve monitoring RESERVES = OUR MOST IMPORTANT AND BEST-MANAGED RISK Æ Internal actuarial calculation complemented by annual external review Æ External actuary to provide recommendations for ULRs for selected business segments before year-end in addition •
Slide 13: Cedents' reported reserves are often not enough
Overview Risk Risk Return/Growth Outlook Reserve monitoring CEDENTS' REPORTED RESERVES ARE OFTEN NOT ENOUGH More than 60% of HR U.S. casualty reserves* are "home made" in m. USD 2,458 2,010 2,000 1,124 1,532 888 1,057 727 950 457 1,000 375 758 465 425 275 371 143 188 877 109 747 530 278 382 404 ,0 2
Slide 14: We use both internal and third-party models
Overview Risk Risk Return/Growth Outlook Aggregate control WE USE BOTH INTERNAL AND THIRD-PARTY MODELS Results: Probability curves for various purposes Æ Hannover Re's aggregate control system is based on • vendor models (AIR: Catrader, Clasic/2; RMS: RiskLink) • internal aggregate control systems (
Slide 15: Peak zone aggregates dominate cat. exposure by size
Overview Risk Risk Return/Growth Outlook Aggregate control PEAK ZONE AGGREGATES DOMINATE CAT. EXPOSURE BY SIZE 1 in 100 year aggregates in m. EUR 1,200 1,150 1,044 980 ,800 497 ,400 368 323 213 123 86 64 0 U.S. Europe U.S. Japan Japan Canada Canada Australia New Zeal. Australia hurricane wind EQ EQ
Slide 16: After KRW we reduced our exposure in peak risk zones
Overview Risk Risk Return/Growth Outlook Aggregate control AFTER KRW WE REDUCED OUR EXPOSURE IN PEAK RISK ZONES Property cat. XL Exposed limits in m. EUR (gross, before all protections) 2,800 2,664 2,572 2,400 2,306 2,000 1,811 1,738 1,600 1,401 1,200 ,800 ,400 0 U.S. hurricane California earthquake
Slide 17: Katrina would be significantly smaller
Overview Risk Risk Return/Growth Outlook Aggregate control KATRINA WOULD BE SIGNIFICANTLY SMALLER (GROSS AND NET) Based on our 2006 portfolio on as-if basis in m. EUR 1,000 746 270 Other protections ,800 213 Non-marine ,600 cat. protections 982 8 Marine protections ,400 143 K5 non-marine 113 K5 mari
Slide 18: Our quantitative tool for risk management
Overview Risk Risk Return/Growth Outlook Dynamic Financial Analysis OUR QUANTITATIVE TOOL FOR RISK MANAGEMENT We analyse major risks and group shareholders' equity with one integrated tool Economic scenario generator Interest Credit Credit Equities rates FX spreads defaults Probability distributions
Slide 19: From a mere P/C R/I to the world's most diversified R/I
Overview Risk Risk Return/Growth Outlook Dynamic Financial Analysis FROM A MERE P/C R/I TO THE WORLD'S MOST DIVERSIFIED R/I 1990 2005 Life/Health R/I 6% Specialty Insurance 18% Property/ Casualty R/I 48% Financial R/I 9% Life/Health R/I Property/ 25% Casualty R/I 94% Total GWP: Total GWP: EUR 1,382
Slide 20: Diversification reduces capital requirements by ~50%
Overview Risk Risk Return/Growth Outlook Dynamic Financial Analysis DIVERSIFICATION REDUCES CAPITAL REQUIREMENTS BY ~50% Due to lower charges for non-P/C business and low intra group correlation 1,00 13% 7% 18% 9% 16% 13% 20% 0,50 100% 81% 83% 69% 65% 57% 57% 50% 0,00 P/C R/I P/C R/I and P/C R/I and
Slide 21: Optimal asset allocation
Overview Risk Risk Return/Growth Outlook Dynamic Financial Analysis OPTIMAL ASSET ALLOCATION Efficient frontier determined by sophisticated ALM model High Each point represents an asset allocation Efficient frontier Current allocation Return Return Risk-minimal allocation Low Risk Low Risk High Æ Lo
Slide 22: Tactical asset allocation can differ from modelling
Overview Risk Risk Return/Growth Outlook Dynamic Financial Analysis TACTICAL ASSET ALLOCATION CAN DIFFER FROM MODELLING Investment category 2002 2003 2004 2005 30 Jun 06 Fixed income securities 75% 81% 81% 82% 81% • Governmentals 26% 25% 25% 26% 24% • Semi-governmentals 20% 21% 21% 20% 21% • Corpora
Slide 23: Risk-management strategy: capital protection
Overview Risk Risk Return/Growth Outlook Dynamic Financial Analysis RISK-MANAGEMENT STRATEGY: CAPITAL PROTECTION Æ Our risk management is meant to Approaches to • protect our capital risk management • stabilise and optimise results • allow us to profit fully from hard markets (e.g. after a major los
Slide 24: Protections safeguard our capital base
Overview Risk Risk Return/Growth Outlook Dynamic Financial Analysis PROTECTIONS SAFEGUARD OUR CAPITAL BASE Swaps EBIT ex P/C R/I Cat.-Bond Structured Traditional XL protections P/C business group EBIT K5 Q/S securitisation Capital Policyholders' (incl. surplus hybrid, minorities) (shareholders' equi
Slide 25: Growth and profitability are correlated
Overview Risk Return/Growth Return/Growth Outlook GROWTH AND PROFITABILITY ARE CORRELATED Æ Within the last 40 years Hannover Re has grown to one of the largest and most profitable reinsurers worldwide • 10-year CAGR net premium earned: 13.0% • 10-year average return on equity: 13.8% Æ Active cycle
Slide 26: Market share gains in hard markets only
Overview Risk Return/Growth Return/Growth Outlook Property/Casualty R/I MARKET SHARE GAINS IN "HARD" MARKETS ONLY We grow our book when others commit new money to R/I market (BDA start-ups) in m. EUR Post 9/11: 6,000 Market share increased 140,000 from 3.3% to 4.2% 120,000 5,000 Post hurricane "Andr
Slide 27: From a nobody to a premier league player
Overview Risk Return/Growth Return/Growth Outlook Life/Health R/I FROM A NOBODY TO A PREMIER LEAGUE PLAYER We do expect significant premium growth in coming years (12 - 15% per annum) in m. EUR 2,728 2,733 2.800 2,660 2,494 2,534 2,488 2.100 1,403 1.400 700 142 0 19911) 1998 1) 2000 2) 20012) 2002 2
Slide 28: Hannover Life Re's expected growth in 2006-2008
Overview Risk Return/Growth Return/Growth Outlook Life/Health R/I HANNOVER LIFE RE'S EXPECTED GROWTH IN 2006 - 2008 Country/ Total SP NM BA RR MN business segment points Germany = = +/++ + + 3.5 UK ++ ++ = - + 4.0 Other Europe = + + + =/+ 3.5 North America + = ++ = = 3.0 Southern Africa ++ + = + = 4
Slide 29: Growing invested assets boosts investment income
Overview Risk Return/Growth Return/Growth Outlook Investments GROWING INVESTED ASSETS BOOSTS INVESTMENT INCOME We expect rising volumes and investment income going forward Total investments Investment income ´ CAGR: +9.3% 27,526 1200 1,124 25,168 1,071 1,080 24,000 22,031 8,447 1000 946 928 343 22,0
Slide 30: Outlook
Outlook ® hannover re
Slide 31: Continuing good returns/growth, at same risk level
Overview Risk Return/Growth Outlook Outlook CONTINUING GOOD RETURNS/GROWTH, AT SAME RISK LEVEL Gross written premium (calendar year)1) Æ Group > 5% • Property/Casualty R/I + 3 - 5% • Life/Health R/I + 12 - 15% • Financial R/I > 10% • Specialty Insurance + 10 - 15% Æ Group RoE at least 15% Æ Dividend
Slide 32: First snapshot on 2007 renewals
First snapshot on 2007 renewals ® hannover re
Slide 33: Rendez-vous de Septembre 6
Overview Risk Return/Growth Outlook Outlook RENDEZ-VOUS DE SEPTEMBRE 2006 Æ Present state of reinsurance market • Trading conditions in property/casualty reinsurance market continue to be risk adequate and therefore attractive • Capacity is available in most lines at reasonable prices, except for ca
Slide 34: Hannover Re's positioning
Overview Risk Return/Growth Outlook Outlook HANNOVER RE'S POSITIONING Æ Strict focus on profitability instead of growth, especially in softening markets Æ Reserving policy to remain cornerstone of P/C business group strategy • Excellent track record for adequate reserving Æ Peak exposures scaled bac
Slide 35: Further information
Overview Risk Return/Growth Outlook Outlook FURTHER INFORMATION Æ For further company information please contact our IR-team or get a copy of our group presentation from our website! ® hannover re
Slide 36: Our investor relations team
Overview Risk Return/Growth Outlook Outlook OUR INVESTOR RELATIONS TEAM Hannover Re Karl-Wiechert-Allee 50 30165 Hannover, Germany Tel. + 49/5 11/56 04 - 0 (Switchboard) Fax: + 49/5 11/56 04 - 16 48 (direct line) Eric Schuh Gabriele Bödeker Associate Director Senior IR Manager Corporate Communicatio
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