Business experience in 2007
Gross written premium (including savings elements of premium under unit-linked life and annuity policies) was almost on a par with the previous year at EUR 19.1 (19.4) billion, corresponding to a decline of 1.2%. Adjusted for exchange-rate effects, gross premiums were 1% higher than in the previous year.
The development of premium income in the year under review was influenced by opposing special effects: whereas in the previous year the Gerling companies had been included in the consolidated financial statements for three quarters, in 2007 they were consolidated for the full financial year. The BHW companies and the additionally acquired 50% interests in the PB insurers were included from the fourth quarter onwards. The Hannover Re subsidiary Praetorian Financial Group, on the other hand, was only recognized in the Group’s income statement for the first five months as a consequence of its sale effective 31 May 2007.
If these special effects are factored out, gross written premium was 5% lower than in 2006, primarily due to the Non-Life Reinsurance segment. This reflects on the one hand the fall in the value of the US dollar, and on the other hand the underwriting policy practiced by Hannover Re, under which it operates with a strict profit orientation in times of softening markets and is willing to accept losses of market shares.
The Group’s highest-growth segment in 2007 after elimination of special effects was Life/Health Reinsurance. Gross premiums here increased by 10% to EUR 3.1 (2.8) billion. This can be attributed to the successful expansion of the enhanced annuities business in the UK.
Net premium earned similarly developed differently in the individual segments. All in all, it changed only marginally relative to the previous year, contracting by 0.8% to
EUR 14.9 (15.0) billion.
The Group’s result was burdened by an increased number of major claims compared to the previous year. Winter storm "Kyrill" alone produced a net strain of EUR 149 million in January. The loss ratio for property/casualty insurance and non-life reinsurance business climbed to 72.5 (71.5)%, while the expense ratio rose to 26.7 (24.6)%. The combined ratio increased to 99.2 (96.1)%.
The number of policies in the Group’s primary insurance portfolio grew by 7% to 21 million.
Group EBIT developed favorably, principally thanks to life/health reinsurance. With an increase of 13% to reach EUR 1.5 (1.3) billion, the Group generated the highest operating profit in its history – despite integration-related expenses of EUR 124 (145) million recognized in income.
The tax expenditure of EUR 329 (438) million includes non-recurring deferred tax income of EUR 230 million (before minority interests) resulting from the cut in tax rates brought about by the reform of corporate taxation in 2008. The tax ratio after adjustment for this non-recurring effect stood at 42 (38)%. In the case of the companies operating in the Life Primary Insurance segment, it should be borne in mind in this context that policyholders share in the positive effect on the net income for the reporting period through the surplus participation. This surplus participation results in a charge to EBIT. The net profit for the year totaled EUR 999 million. After deduction of minority interests in an amount of EUR 522 million, Group net income increased by 21% to EUR 477 (394) million. The total return on premium (i.e. EBIT relative to net premiums earned) climbed by 1.1 percentage points to 9.7 (8.6)%.
All in all, the performance of the 2007 financial year was in line with our expectations. We surpassed our goal of generating a return on equity 750 basis points in excess of the risk-free interest rate.