For six consecutive years now I have been able to report record results in this letter – and this is again the case today. We increased our net income in 2000 by 81% to EUR 365 million. The earnings per share, which rose from EUR 6.86 to EUR 12.38, showed a corresponding rise. The return on equity after tax stood at 26% and we intend to propose to our shareholders an increase of the dividend payment for the seventh time in a row.

In 1999, the German insurance industry had reasons to complain of the disadvantages associated with the tax legislation, the reduction in the rates of corporate tax in the financial year just-ended had a highly favourable, non-recurrent effect on some companies – including our own. Yet this should not disguise the fact that our pre-tax operating result declined. Overall, however, bearing in mind its previous tax disadvantages, Germany has become more competitive and hence also in the long term more attractive as a business location.

Our gross premium income again rose sharply in the 2000 financial year by 24% to EUR 8.3 billion. Following a prolonged period of unattractive market conditions, we were able to exploit fresh opportunities for profitable growth that emerged in certain selected markets of property and casualty reinsurance. Consequently, in the year under review property and casualty reinsurance, financial reinsurance and program business made appreciable growth contributions. After factoring out a special effect from the previous year as well as the effects of US GAAP accounting rules, our fourth business segment – life and health reinsurance – again posted very successful growth.

Results in our four business segments varied widely in quality and confirmed the strategic importance of being able to draw on various sources of income. Thus, in a situation where the result of one business segment fell far short of expectations, we were once more able to show satisfactory overall bottom line results. In life and health reinsurance the investments of the previous years are now paying off. The operating profit in this segment rose by 78% to EUR 83 million, and after additionally factoring in the development of the present value of future profits the result is even more gratifying. The same is true of financial reinsurance – our most profitable segment surpassed the high operating profit of the previous year to post a result of EUR 54 million.

Although the burden of losses from natural catastrophes decreased very substantially in property and casualty reinsurance, profits were still adversely impacted by the terms and conditions of previous years, and we were therefore only able to generate a slight improvement in results. The combined ratio – an indicator of the quality of the business – improved from 111% to 108%. Program business, our fourth and newest business segment, performed disappointingly in the year under review. This segment continues to be largely dominated by the Clarendon Insurance Group based in New York. Despite systematic and highly successful growth, the inadequate terms and conditions prevailing on the US insurance markets at the beginning of 2000 were also reflected in our results. In addition, the performance of this segment was burdened by two non-recurring special circumstances, as a consequence of which the Group's program business only posted a balanced result. We have since taken all measures necessary to ensure that this segment, also, will once again generate the expected profit contributions in the coming years. Our optimism in this regard is reinforced by the fact that in the USA, terms and conditions have now improved in numerous market segments.

The financial markets gave us a bumpy ride over the past year. In the first quarter 2000, we exploited the sometimes extreme price rises – especially among technology stocks – to realise gains. The profits on disposals were therefore almost on a par with the high level of the previous year. In combination with considerably higher ordinary investment income, net investment income increased by a further 5%. In my opinion, however, it will be virtually impossible in the immediate future for insurers and reinsurers to offset inadequate technical income with profits on disposals – which are by their very nature unreliable. This trend will favour those market players who have hitherto set great store by a profit-orientated underwriting policy, and it necessitates the continued exercise of underwriting discipline – especially in property and casualty reinsurance.

With the sudden bursting of the bubble around technology stocks on the various "new markets", investors have started to "rediscover" our share as a fundamentally attractive stock. Climbing 24% in the year under review, the performance of our share finally charted a course which again ran parallel to our business results. Unfortunately, we were unable to divorce ourselves from the generally negative trend at the close of the past year and the beginning of the current one, with the result that the share's value has again declined. Based on the analysts' consensus estimate for the current year, the Hannover Re share is presently trading at a price earnings ratio of 9.8. This figure clearly reveals – also in comparison with similar listed companies – the considerable potential that is still inherent in our share.

Particularly gratifying was the feedback on our investor relations activities, which we received from financial analysts through the business journal "Capital" – namely in the form of the "Capital Investor Relations Award 2000". In a survey carried out in co-operation with the German Association for Financial Analysis and Asset Management (DVFA), financial analysts were asked to rate companies according to criteria of up-to-date nature, credibility and quality of company information. Based on this survey, the investor relations activities of Hannover Re were commended for being the best in their market segment (MDax). Not only that, in an overall rating of all the 237 companies considered we occupied third place, performing better than every Euro Stoxx 50 and Dax-listed company.

Since 1999 had already been influenced by a favourable tax effect, it has become difficult for outsiders to assess the true earnings power of our Group and ascertain whether we are really achieving our corporate objectives. This is particularly relevant in the current year, which will reflect the considerable one-off effect in the year under review. For a number of years we have openly communicated our overriding goal of increasing the earnings per share by at least 10% annually. Given the fact that the last two years both provide a distorted basis, a long-term comparison can only be based upon the last "normal" accounts, i.e. for the 1998 financial year. Our goal for 2001, therefore, must be to increase the net income by three times 10% (representing three years) on the basis of the 1998 results. At the same time, we continue to pursue our objective of generating an attractive return on equity.

I am optimistic that in future years we shall continue to achieve our ambitious strategic objectives, provided that no exceptionally large catastrophes occur or there are no extraordinary events in the capital markets.

Since the changeover to registered shares at the end of last year we have had at our disposal detailed knowledge of our shareholding structure. As a globally operating company, we consider it highly positive that more than half of our free-floating stock is held by international investors. This vindicates our strategy of addressing the broadest possible investor base with our investor relations measures. Yet there is still scope for further diversifying our shareholder base. We intend to tap into this potential in order to safeguard an appropriate market valuation of your company.

On behalf of my fellow members of the Executive Board and myself, I would like to thank you, our shareholders, for your confidence in our company. I can assure you that we shall live up to your trust; we shall do everything in our power to bring about a sustainable increase in the value of your company.

Yours sincerely,

Wilhelm Zeller
Chairman of the Executive Board