Hannover Re optimistic for 2012 as prices rise

FRANKFURT (Reuters)—Hannover Re Group is optimistic for 2012 after obtaining higher prices and premiums when it renewed contracts with insurance companies at the start of this year to help cover losses from hurricanes and earthquakes.

“Overall, we expect rising premiums and rising earnings in 2012,” Chief Executive Ulrich Wallin told a journalist briefing in remarks set for release on Wednesday.

The reinsurer obtained price increases of 3% to 6% when renewing the annual contracts with insurers in January.

“In segments affected by natural catastrophes, the price increases were particularly marked,” Mr. Wallin said.

Devastating earthquakes in Japan and New Zealand and tornadoes in the United States made 2011 one of the industry's most costly, forcing reinsurers such as Hannover, Munich Reinsurance Co. and Swiss Re Ltd. to pay billions of euros to help insurers settle damage claims.

The January contract talks had shown reinsurers' pricing power had improved relative to insurance companies, though it was still too soon to speak of across-the-board strength, Mr. Wallin said.

A bigger proportion of last year's claims were passed through to reinsurers, eating away at the equity capital of many players and limiting their ability to write new business, as well as burning through reserve funds that can offset losses.

In addition, reinsurers have seen their investment income hit by low interest rates, all of which is keeping pressure on the sector to refrain from lowering reinsurance prices.

About two-thirds of Hannover's nonlife reinsurance business premiums were up for renewal at the start of the year, and the group said it boosted the volume of renewed premiums by 6% to e3.69 billion ($4.77 billion).

The group said the persistent erosion of premiums in Germany's e20 billion ($25.86 billion) motor insurance market had finally ended, with Hannover pushing through price rises.

Mr. Wallin declined to comment on the reinsurer's 2011 results, which the group is preparing to unveil on March 14.

“We certainly have no reason to give any sort of profit warning,” he said.

Hannover Re has said it expects to post net profit of at least e500 million ($646.6 million) in 2011 and possibly pay out more than 40% of it as a dividend.

Hannover, which is 50.2% owned by German insurer and stock-market candidate Talanx A.G., also bumped up its theoretical budget for large losses this year to e560 million ($724.1 million) from e530 million ($685.3 million) in 2011, in line with the expected rise in premiums and insured values.

The group said it expected to see a damage claim from the bankruptcy of German drug store chain Schlecker, but it was too early to be able to estimate the loss.