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| ANNUAL REPORT 2000 | |
The Hannover Re Share
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Chairman's address
Boards and Officers
Executive Board
The Hannover Re share
Self-image and strategy
The Group's global presence
Report of the Hannover Re Group
Consolidated accounts
Notes
Auditors' report
Branch offices and subsidiaries
Strategic business segments
Stock markets: A year with two very different faces… The 2000 stock market year was characterised by two very different phases with at times considerable turmoil. The beginning of the year was marked by an upbeat mood on the German and most international stock exchanges. A fundamentally positive tone carried over from the previous year, the absence of significant adverse ffects associated with the new millennium and favourable economic trends in the most important industrialised nations spurred the stock markets to ever greater highs. Euphoria was particularly prevalent in the segments of the new markets for technology, media and telecommunications (TMT) stocks. Virtually all the world’s indices continued their high-flying run of the previous year. In the USA both the Dow Jones and the NASDAQ index for tech stocks boomed. In Germany, too, the Nemax new market index reached an all-time record high on 10 March at 9,603.46 points. The scene was similar on the Dax – primarily due to the vigorous growth of the technology and telecommunications stocks included in this index it reached its highest level of the year on almost exactly the same day. Yet, from early summer onwards the picture changed dramatically. Triggered by falling prices in the USA, a worldwide slump set in – especially among TMT stocks – and gathered further momentum as the year progressed. In Germany, a "sell-off" began on the new market – exacerbated towards the end of the year by severe financial distress among the former stock market darlings of this segment – and by year-end the Nemax had dropped 70% from its peak high. Nor was the Dax – additionally burdened in the second half of the year by interest-rate concerns in the USA – able to divorce itself from this trend. By the end of the year under review it had lost 20% of its annual high and closed 5% lower overall than at the beginning of the year. Although it appeared for a while that at least the MDax might be able to withstand the disappointment surrounding the new technology stocks, the general slowdown in economic activity – not least due to rising oil prices – added to the strain on the market. Nevertheless, the MDax still showed a gain of 14% over the year. …for insurance stocks too – albeit with roles reversed Insurance stocks began 2000 on a pleasing note. The future tax exemption announced by the Federal Government for sales of equity participations led to particularly marked price increases among listed German market leaders in the insurance and reinsurance sector. The heavy weighting of these stocks within the CDax for insurance stocks caused this index to rise sharply during the early weeks of the year. However, the euphoria surrounding TMT stocks quickly deflected investors' focus away from insurance stocks, with the result that they generally lost ground into the month of March. Yet from the second quarter onwards, the collapse of the new markets created fresh potential for the "Old Economy" stocks, especially for insurance shares. The CDax for insurance stocks climbed by yearend to 751.35 points, a figure equivalent to a gain of roughly 30%. The Hannover Re share profited from a recovery in the Old Economy“… The performance of the Hannover Re share was similarly affected by the aforementionedtendencies. Due to the structure of our portfolio of equity participations, we were unable to profit decisively from the new tax rules. Nevertheless, with the rediscovery of top-quality securities from March 2000 onwards, our share posted a sharp upturn and on 15 November reached a high of EUR 118. Despite a subsequent decline in the price, we closed the year under review with a gratifying increase in value of 24%.
It should, however, be noted that we do not use the CDax for insurance stocks to measure the performance of our share. Bearing in mind that this index weights companies according to their market capitalisation, it is very heavily dominated by the price trends of the two largest insurers and reinsurers and hence gives a somewhat distorted view. As part of our strategy we have therefore set ourselves the goal of achieving an increase in the share price which on a 3-year moving average surpasses the performance of the unweighted world reinsurance index. This index, which is published monthly in the international insurance journal "Reactions", increased in the year under review by around 29%. The performance of our share thus ran almost parallel to worldwide reinsurance stocks. …but continues to offer considerable potential We are certain that the Hannover Re share continues to offer considerable potential. Although the basic tendencies on the stock markets are beyond our control, we can create the necessary conditions for tapping into this potential by constantly enhancing our most important fundamental profit and return-on-equity parameters. Our overriding task, therefore, is to increase our profit by at least 10% annually and to continue to generate an above-average return on equity. In the financial year justended we again succeeded in achieving these targets. The earnings per share totalled EUR 12.38, a rise of 81% compared to the previous year. The return on equity was also above the market average at 17% before tax and 26% after tax. Furthermore, it clearly surpassed our strategic target of a minimum return on equity of 750 basis points in excess of the average yield on 10-year government bonds. In order to optimally structure the return on equity and hence ensure the highest possible return on the capital invested by our shareholders, we continued to implement highly purposeful asset management. The transfer of reinsurance risks to the capital markets, a long-term subordinated loan and traditional retrocessions all served as cost-effective equity substitutes.
High level of our Investor Relations activities maintained In the year under review we again set great store by maintaining and further expanding our investor relations activities, which are frequently rated as above-average. Our goal was to familiarise an even larger group of investors and analysts with the Hannover Re share and intensify existing contacts. To this end, for example, we participated in investor fairs and share forums organised by various banks. In addition, we presented our share to institutional investors in numerous individual discussions – both at our offices in Hannover and during our visits to investors at all the world’s major financial centres. As a new component of our investor relations programme, we launched a seminar for analysts which was held for the first time in 2000. It is aimed specially at institutional financial analysts who have already gained solid knowledge of Hannover Re but wish to familiarise themselves more deeply with the principles underlying individual business segments. With this aim in mind, we invited for the first time analysts and investors to participate in a one-and-a-half-day seminar in Hannover in the summer. The topics of the 2000 event were life and health and financial reinsurance, and they were explained in detail by the responsible managerial staff at our company. The feedback we received for this seminar was positive in every respect, and seminars of this type will therefore continue to form part of our investor relations programme in the future. In order to obtain a better insight into our shareholding structure, we unified our share structure in the year under review and subsequently effected a complete changeover to registered shares. As a first step, we therefore called the outstanding amounts on hitherto partially paid share capital in order to have those of our shares, which were unlisted at that time admitted to the German stock exchange. By means of this action we significantly increased our weighting in the MDax and CDax for insurance stocks. On 16 October 2000, all Hannover Re shares were converted to registered shares. The newly gained detailed insights into our shareholder structure provide us with an important tool for organising our investor relations activities systematically and efficiently and enhancing still further the direct contacts we maintain with our shareholders. Early analyses of our stock ledger produced gratifying results. This is particularly true of the already relatively good diversification of our free-floating stock, although it still offers scope for a broader spread. As at December 2000 the geographical diversification of our free float was as follows:
If the shareholdings are broken down into corporate entities and natural persons, the lion's share is of course attributable to institutional investors. As of December 2000, around 72% of the free-floating capital stock was in the hands of institutional investors. Nevertheless, the resulting privately held proportion of 28% still constitutes a remarkable figure. We attach great importance to the fulfilment of meaningful and internationally recognised corporate governance requirements. Several associations in Germany have now drawn up such principles, the purpose of which is to ensure responsible, value-orientated management and control of companies. We support the definition of such general principles and are guided by them. The introduction of variable remuneration based on value enhancement for our managerial staff worldwide (stock option plan), holdings of the Executive Board and the designation of a Corporate Governance Officer – hose task is to monitor compliance with the defined principles – mean that we now satisfy around 80% of the corporate governance requirements contained in the German Association for Financial Analysis and Asset Management (DVFA – Deutsche Vereinigung für Finanzanalyse und Asset Management) scorecard. We were particularly pleased to win the "Capital Investor Relations Award 2000". This prize, which has been awarded by the business magazine "Capital" for the past four years, assesses the information provided by a company according to criteria of up-to-date nature, credibility and quality. The survey conducted in co-operation with the DVFA commended the investor relations activities of Hannover Re 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. "Hannover Re has one of the best portfolio mixes in the reinsurance industry, with the faster-growing segments of life and financialreinsurance accounting for more than 40% of total premium income… Overall, in that period, Hannover Re has transformed itself from a regional traditional non-life reinsurer into a welldiversified large global reinsurer and provider of related financial services." Alex Orloff, ABN Amro "Hannover Re's clear strategic focus, excellent diversification and disciplined underwriting policy are testimony to the quality of its management." Simon Fößmeier, Julius Bär "Hannover Re has an interesting exposure to high growth, high RoE niche businesses and is geared to a cyclical property and casualty reinsurance recovery. We believe this provides an attractive cocktail of newsflow catalysts an earnings momentum." Brian Shea, Merrill Lynch "Hannover Re is not only a well-managed company; it has also communicated all the good news to the capital market." Dr. Stephan Kalb, Crédit Agricole Indosuez "Hannover Re's foremost attraction seems to derive from its ability, as seen in its underwriting and retrocession policy, and a talent for innovation, as witnessed by the ways it has found to use securitisation to handle insurance risks." Frédéric Bourgeois, Natexis Capital "Unlike many other insurers, Hannover Re is not burdened with excess capital and the attractive leverage means that improved operating results will feed directly through to significant RoE enhancement." Trevor May, Schroder Salomon Smith Barney "Aware of the risk and difficulty of competing against world leaders..., as another global player, Hannover Re has favoured the so-called "specialty" segments over "mass-market" reinsurance The group has clearly put profitability ahead of market share." Jean-Christian Huard, Charles Landa, Société "We believe HDI's expressed intention to raise liquidity in Hannover Re from 25% to 50% will ease liquidity concerns that have previously deterred investors." Stephen Dias, Demetrius Hassiotis, "With a worldwide market share of 7.5% Hannover Re is well positioned in the life and health reinsurance segment. In the light of the growth prospects and reliably calculable risks, we take a favourable view of the company's efforts to continuously expand its life reinsurance portfolio." Ralph Lutz, Daniela Heyduck, "The restructuring process changed the dependency from catastrophes to fee income. Although natural and man-made catastrophes still have a major impact on the result, the program business and block transactions generate stable fee income." Marc Thiele, Susan Holliday, JP Morgan "An innovative, diversified reinsurance group; dynamic management team with commitment to developing shareholder value." Bob Yates, William Hawkins, Fox-Pitt, Kelton "By the use of securitisation, Hannover Re is optimising its capital allocation and is also not compelled to slow down its fast pace of growth." Lars Niggeling, Andreas Frick, Bank Vontobel AG "Hannover Re is a high-quality, aggressive reinsurance company, which has become the world's fifth-largest professional reinsurer. In the four-year period 1996-1999, the group doubled its premiums." Robin Mitra, Robin Buckley, Credit Suisse FirstBoston Share Information
Press conference on the annual results 2000 Analysts' meeting Frankfurt Analysts' meeting London Annual General Meeting 2001 Report on the first quarter 2001 Report on the second quarter 2001 Report on the third quarter 2001 Annual General Meeting |
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