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Hannover Re looking well placed

Rising premiums and a benign claims backdrop leave German reinsurance giant Hannover Re looking well placed
April 4, 2013

It looks a good time to invest in the insurance sector. That's because the hefty losses that hit insurers during 2011 - from catastrophes such as earthquakes in New Zealand and Japan, tornadoes in the US and floods in Australia and Thailand - also mean that premiums have to rise on policies exposed to catastrophes. Yet, with the exception of Hurricane Sandy and the Costa Concordia cruise ship disaster, 2012 turned out to be a benign year for claims. That backdrop is proving good news for most insurers and German reinsurance giant Hannover Re (0M9A) looks well placed to benefit.

IC TIP: Buy at 62.33€
Tip style
Growth
Risk rating
Medium
Timescale
Long Term
Bull points
  • Catastrophe-related premiums still rising
  • Investment performance looking good
  • Life side provides diversification
  • Nice dividend yield
Bear points
  • Losses on Hurricane Sandy
  • Currency risk on dividends

Hannover Re insures other insurers against the losses they sustain, so it is heavily exposed to precisely those catastrophe-exposed classes where rates have been rising the most. Some 56 per cent of its gross premiums are generated from its non-life reinsurance unit, covering such reinsurance business lines as 'property catastrophe' or marine cover. With the group's results for 2012, its bosses say that "prices for reinsurance cover improved markedly" during the year, with the "most appreciable" price increases coming from the group's property catastrophe book. The energy book delivered "appreciable" price increases as well.

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