Hannover Rueck SE · XETR:HNR1
Hannover Rueck — Hannover Re — Investor Presentation (2004)
23 slides from Hannover Rueck's investor presentation, Aug 9, 2004
Slide 1: Capitalization, Recoverables & Financial Flexibility
Capitalization, Recoverables & Financial Flexibility - Managing the Rating Process Dr. Elke König Executive Board Member & Chief Financial Officer ® hannover re
Slide 2: Hannover Re as seen by Rating Agencies
Hannover Re as seen by RATING AGENCIES1) Rating was the "topic of the day" 2003. Where do we stand now? S&P peer review Æ Business position 9 Capitalization - DFA Æ Management & corporate strategy 9 - Recoverables Æ Operating performance 9 Financial flexibility Both areas improved: We remain one ste
Slide 3: Capitalization is strong
CAPITALIZATION is strong S&P peer review Æ S&P 2003: Capitalization "Strong capitalization . . . offset by concerns over Hannover Re's - DFA quality of capital, including the group's high exposure to - Recoverables reinsurance recoverables." Financial flexibility - Retained earnings ¬ We had plenty
Slide 4: Capital Management: Steady increase of visible capital
CAPITAL MANAGEMENT: Steady increase of visible capital in m. € S&P peer review 4,000 4,000 3,680 Capitalization +24.4% - DFA 784 2,959 3,000 3,000 2,897 - Recoverables 492 Financial flexibility 2,400 819 917 - Retained earnings 533 2,000 2,000 3,100 400 - Invisible capital 308 2,700 294 2,500 2,405
Slide 5: Total capital has increased, too
TOTAL CAPITAL has increased, too in m. € S&P peer review 6,000 6,000 5,700 1) +18.8% Capitalization 5,000 5,000 4,800 - DFA 4,650 2,020 4,500 - Recoverables 4,000 4,050 4,000 4,000 3,750 1,841 1,550 1,603 Financial flexibility 1,350 3,000 1,600 1,250 - Retained earnings 3,000 3,000 - Invisible capit
Slide 6: DFA Model: Structure
DFA MODEL: Structure Credit Stock Interest FX spreads Defaults S&P peer review Capitalization - DFA Outputs US-GAAP balance US-GAAP balance - Recoverables 31 Dec 2003 31 Dec 2013 Bonds Shareholders‘ 10,000 Bonds Shareholders‘ equity equity Financial flexibility Equities simulations Equities Real est
Slide 7: Current Situation: Percentile graph
CURRENT SITUATION: Percentile graph Shareholders' equity in various time periods1) in m. € 8,000 S&P peer review Max. of 10,000 7,000 Capitalization 99% 6,000 - DFA 90% - Recoverables 5,000 80% 50% Financial flexibility 4,000 20% 10% 3,000 5% - Retained earnings 1% 0.5% 0.1% - Invisible capital 2,00
Slide 8: Idea: Get a better feeling for the risks in the company
IDEA: Get a better "feeling" for the risks in the company Shareholders' equity (present value) in m. € 8,000 7,000 6,000 S&P peer review Start with a planned scenario 5,000 (all model components are 4,000 Capitalization deterministic): 3,000 2,000 1,000 - DFA ,0 0 4 8 12 16 20 24 28 32 36 40 Quarter
Slide 9: Idea: Get a better feeling for the risks in the company
IDEA: Get a better "feeling" for the risks in the company Shareholders' equity (present value) in m. € 8,000 7,000 6,000 S&P peer review Start with a planned scenario 5,000 (all model components are 4,000 Capitalization deterministic): 3,000 2,000 1,000 - DFA ,0 0 4 8 12 16 20 24 28 32 36 40 Quarter
Slide 10: Idea: Get a better feeling for the risks (cont'd)
IDEA: Get a better "feeling" for the risks in the company (cont'd) S&P peer review Capitalization Æ DFA gives us guidance towards - DFA • The risk we can and want to take - Recoverables • Diversification Financial flexibility • Protection of the balance sheet - Retained earnings Æ DFA is a tool, doe
Slide 11: Recoverables: Ahead of plan
RECOVERABLES: Ahead of plan S&P peer review Æ S&P 2003: Capitalization "The outlook is negative pending the successful implementation of Hannover Re's initiatives to further improve quality of capital. - DFA These will mainly focus on the gradual reduction of reinsurance - Recoverables recoverables,
Slide 12: R/I recoverables significantly reduced, in absolute terms
R/I RECOVERABLES significantly reduced, in absolute terms . . . in m. € 7,000 6,759 S&P peer review Capitalization 6,180 6,000 - DFA - Recoverables -29.2% Financial flexibility 5,000 - Retained earnings 4,397 4,376 - Invisible capital 4,000 - Retrocessions - Capital markets 3,000 - Securitizations 2
Slide 13: As well as in relative terms: R/I recoverables
. . . as well as in relative terms: R/I RECOVERABLES in m. € 7,000 6,759 250% 233% S&P peer review 6,180 209% Capitalization 5,500 200% - DFA - Recoverables 4,397 4,376 4,394 4,000 3,680 150% Financial flexibility - Retained earnings 2,959 120% 2,897 - Invisible capital 2,500 100% <100% - Retrocessi
Slide 14: Financial Flexibility: Strongly improved
FINANCIAL FLEXIBILITY: Strongly improved S&P peer review Capitalization Æ We have proved and improved our ability to adjust to higher - DFA capital requirements, particularly we have… - Recoverables Financial flexibility • Proved our accessibility to debt and equity capital markets - Retained earnin
Slide 15: Higher capital requirements result from...
HIGHER CAPITAL REQUIREMENTS result from . . . S&P peer review Capitalization Æ Premium growth - DFA Æ Poor earnings performance - Recoverables Æ Erosion of the capital base Financial flexibility - Retained earnings Æ Acquisitions - Invisible capital ¬ None of the above applies to Hannover Re in 2004
Slide 16: Higher capital requirements could be met by tapping...
HIGHER CAPITAL REQUIREMENTS could be met by tapping . . . S&P peer review Æ Retained earnings Capitalization Æ Invisible capital - DFA Æ Retrocessions - Recoverables Financial flexibility Æ Securitizations - Retained earnings Æ Capital markets - Invisible capital - Retrocessions ¬ All of the above a
Slide 17: Retained earnings have been growing in hard markets
RETAINED EARNINGS have been growing in hard markets in TEUR 2,000 S&P peer review 1,859 Capitalization +34.8% 1,737 - DFA - Recoverables 1,500 Financial flexibility 1,379 - Retained earnings - Invisible capital 1,242 - Retrocessions - Capital markets 1,000 - Securitizations 2001 2002 2003 Q1/2004 Co
Slide 18: Invisible capital results inter alia from
INVISIBLE CAPITAL results inter alia from Æ Discount on loss reserves S&P peer review Æ Non-capitalized portfolio value Capitalization Æ Reserve redundancies - DFA 2,020 in m. € 2,000 - Recoverables 1,841 Financial flexibility 1,800 - Retained earnings 1,600 1,603 1,600 - Invisible capital 1,400 - R
Slide 19: Retrocessions complement shareholders' equity in a hard market
RETROCESSIONS complement shareholders' equity in the beginning of a hard market 79.5% 80,0% 80.0% S&P peer review Capitalization - DFA 71.9% - Recoverables Financial flexibility 70,0% 70.0% - Retained earnings 65.3% - Invisible capital - Retrocessions 61.7% - Capital markets 60,0% 60.0% - Securitiza
Slide 20: Excellent accessibility to capital markets
We have shown excellent accessibility to CAPITAL MARKETS Æ Example 1: 12 Jun 2003 € 220 m. cash equity increase S&P peer review • 9.7 m. shares placed within ½ hour (10% of share capital) • Pricing at less than 5% discount to market Capitalization • Placed in a still less-than-favourable market envi
Slide 21: Improved access to equity markets
We particulary improved access to EQUITY MARKETS Æ Hannover Re free float improved from 25.0% to 48.8% in 12 months S&P peer review Capitalization ¬ Average trading volumes have increased five-fold - DFA • Before 12 Jun 2003 (capital increase): ~ 100,000 shares/day - Recoverables Financial flexibili
Slide 22: Equity substitutes: Securitizations
EQUITY SUBSTITUTES: Securitizations KOVER (Q1/94)1):USD 85 m. Transfer of natural perils K2 (Q4/96)1): USD 100 m. Portfolio-linked swap L1 (Q1/98)2): DEM 100 m. Securitization of acquisition costs S&P peer review in life reassurance (new business, Europe) Capitalization K2+ (Q4/98)1): USD 50
Slide 23: Conclusion: We have worked on our areas of improvement
CONCLUSION: We have worked on our areas of improvement Capitalization S&P peer review Æ Visible capital has grown (+24.4%1)) Capitalization - DFA • Also relative to invisible capital as part of the TAC2) - Recoverables Æ Recoverables have shrunk (-29.2%3)) Financial flexibility • Also relative to th