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HANOVER, Germany Improved risk controls and a renewed focus on core lines of business at Hannover Re has led the German reinsurance group's management to up its profit forecast for full year 2006 and 2007.
Wilhelm Zeller, chief executive of the Hanover-based group, told analysts at an investor conference in Paris, France, that the group should now report a year-end profit of about €480m and a profit per share of about €4.00 for 2006.
Mr. Zeller also predicted that return on capital after tax should reach about 15% for both 2006 and 2007 based on current market conditions.
Hannover's improved outlook is based upon an improved risk profile, a benign catastrophe year in core markets such as the United States and stronger premium growth than expected.
Equity analysts expect Hannover Re to report gross premium growth of about 5% for the full year compared with 4.3% reported for the first nine months of the year.
Most European and U.S. equity analysts responded positively to Mr. Zeller's comments.
They said that they were not surprised by the improvement at Hannover Re as the group had enjoyed higher rates for U.S. catastrophe business after 2005, improved its risk profile by exiting some higher risk lines and benefited from the lack of catastrophic activity.
They were, however, all positive about the recent sale of the U.S. primary business of Praetorian Financial Group to fast-growing Australian insurance group QBE Insurance Group Ltd., a deal that closes in the second quarter of this year.
Equity analysts at Cheuvreux in Amsterdam said that it is likely that Hannover Re will invest the proceeds of the Praetorian deal by increasing the volume of its U.S. catastrophe business as rates continue to remain "extremely attractive."
The Cheuvreux analysts reckon that move could deliver additional EBIT profit of around €40 million next year.
Analysts at Citigroup in London said that Hannover's now "solid outlook" was largely supported by a probable re-investment of the proceeds from the Praetorian sale in the core reinsurance business and reduction in its reliance on high cost retrocession coverage.