Hannover Re: Capital market crisis and above-average volume of catastrophe losses dominant factors in the result as at 30 September 2008

Capital market crisis and above-average volume of catastrophe losses
dominant factors in the result as at 30 September 2008

* Operating profit (EBIT) 32.5 million euro
* Group net income -142.8 million euro
* Catastrophe losses 444.9 million euro
* Stable ordinary investment income, but write-downs of
432.6 million euro on securities
* Capital base remains solid
* Good business prospects for 2009

Hannover, 5 November 2008: As already announced by Hannover Re on 21
October 2008, the further worsening of the crisis on international
financial markets as well as a higher-than-average burden of
catastrophe losses have taken an appreciable toll on the company's
result. Despite its conservative investment strategy, Hannover Re
again had to take significant write-downs - particularly on equity
holdings - in the third quarter. "Our core business developed in line
with expectations. Unfortunately, as a major institutional investor,
we were unable to escape the turmoil on capital markets unscathed",
Chief Executive Officer Wilhelm Zeller explained.

That Hannover Re's long-term financial strength remains robust
despite the significant drop in profits in the third quarter is also
reinforced by Standard & Poor's, which confirmed its "AA-" rating
with a stable outlook at the end of October.

The operating profit (EBIT) as at 30 September 2008 contracted from
678.3 million euro to 32.5 million euro. Group net income turned
negative to -142.8 million euro, compared to a surplus of
577.3 million euro in the comparable period of the previous year. In
this context it should be borne in mind that the third quarter of
2007 had been influenced by a positive special effect in the order of
180 million euro associated with the German corporate tax reform. The
result as at 30 September 2008 was also adversely impacted by the
fact that losses on equities are not tax-deductible in Germany, as a
consequence of which a tax load in excess of 100 million euro was
incurred despite posting a pre-tax deficit. This performance was
equivalent to earnings of -1.18 euro (4.79 euro) a share.

Shareholders' equity totalled 2.6 billion euro, a decline compared to
the level as at 31 December 2007 (3.3 billion euro). A key factor
here - along with the repercussions of the financial crisis - was the
dividend payment for 2007 amounting to 277 million euro. The book
value per share stood at 21.67 euro. The policyholders' surplus,
comprised of shareholders' equity, minority interests and hybrid
capital, totalled 4.5 billion euro.

On account of the withdrawal from specialty business and the downward
slide in exchange rates in the first half-year, the gross written
premium booked by the Hannover Re Group contracted by 5.0% as at 30
September 2008 to 6.1 billion euro (6.4 billion euro). At constant
exchange rates the decline in gross premium volume would have been
1.3%. The level of retained premium rose to 88.8% (86.4%) as a
consequence of appreciable savings on the costs of the company's own
protection covers as well as reduced proportional cessions; net
premium earned fell by 6.0% to 5.2 billion euro (5.5 billion euro).

The development of non-life reinsurance business was satisfactory.
Although softening tendencies were still evident on some major
markets, conditions were broadly acceptable overall. In most cases it
was possible to obtain prices commensurate with the risks. "We have
scaled back business that no longer satisfied our profitability
requirements and reshuffled our portfolio in favour of other
segments. These include German business, the markets of Central and
Eastern Europe and agricultural covers worldwide, an area where
demand is growing", Mr. Zeller noted. The company also remains
actively involved in reinsurance business transacted according to
Islamic principles, which is successfully written by the
Bahrain-based subsidiary Hannover ReTakaful.

Gross premium for total non-life reinsurance as at 30 September 2008
contracted by 7.6% year-on-year to stand at 3.8 billion euro
(4.1 billion euro). The withdrawal from specialty business and weak
exchange rates were key factors in the reduced premium volume. At
constant exchange rates, especially against the US dollar, the
decline would have been 1.7%. The level of retained premium rose from
83.9% to 88.4%. Net premium earned fell by 8.5% to 3.1 billion euro
(3.4 billion euro).

The third quarter was particularly heavily influenced by the effects
of hurricane "Ike", which caused an insured market loss put at 15 to
20 billion US dollars. The resulting net strain for Hannover Re is in
the region of 220 million euro, while the loss from hurricane
"Gustav" is around 30 million euro. Additional expenditure was
incurred inter alia from two hailstorms in the summer in Germany -
which cost altogether 64.3 million euro -, as a consequence of which
the total burden of catastrophe losses and major claims for the first
nine months came to 444.9 million euro (259.2 million euro). This
figure is equivalent to 14.3% of net premium in non-life reinsurance
and hence considerably higher than the calculated expectancy of 10%.
The combined ratio thus stood at 103.6% (100.9%).

The underwriting result in non-life reinsurance therefore declined
from -50.3 million euro in the comparable period of the previous year
to -131.2 million euro. The operating result (EBIT) fell to
-86.0 million euro (442.2 million euro) owing to sharply lower
investment income. Group net income contracted substantially to
-178.0 million euro (382.9 million euro), equivalent to earnings of
-1.48 euro (3.17 euro) a share.

The underwriting experience in the life and health reinsurance
business group was satisfactory as at 30 September 2008, although the
premium volume fell short of expectations, not least on account of
the restraining effects of exchange rate movements - especially in
the first half of the year. Premium income similarly declined in the
area of UK life insurance policies taken out in conjunction with
mortgage loans. "In the medium term, however, we stand by our
ambitious goal of generating double-digit growth rates since the
demographic trend in industrial nations as well the expanding urban
middle class in threshold markets offer a good basis for solid
growth", Mr. Zeller emphasised.

Hannover Re, which operates in this business group under the Hannover
Life Re brand, is optimally positioned in its largest market - the
United Kingdom - with its orientation towards enhanced annuities. In
this subsegment, as with the reinsurance of existing pension funds,
the company sees very good opportunities for further profitable
expansion.

Gross premium in life and health reinsurance declined by a modest
0.8% as at 30 September 2008 to 2.3 billion euro (2.3 billion euro)
due to the restraining effects of exchange rate movements. At
constant exchange rates growth of 6.1% would have been recorded. The
level of retained premium decreased marginally to 89.3% (90.5%). Net
premium earned fell by 2.0% to 2.1 billion euro (2.1 billion euro).

The appreciable drop in the operating profit (EBIT) - which
contracted by 55.4% as at 30 September 2008 to 93.2 million euro
(208.9 million euro) - can be attributed principally to non-recurring
positive special effects in the same period of the previous year,
which resulted from the release of reserves that were no longer
necessary, as well as to the required fair value measurement of
assets deposited with clients.

The EBIT margin of 4.5% fell short of the target corridor of 6.5% to
7.5%. On account of the factors discussed above Group net income
contracted by 69.7% to 61.4 million euro (202.6 million euro); this
corresponds to earnings of 51 cents (1.68 euro) a share.

The performance of Hannover Re's investment portfolio as at
30 September 2008 was overshadowed by the increasingly dramatic
upheavals on international capital markets, especially the abrupt
slump in equity prices. The inflow of cash from underwriting
nevertheless more than made up for the price declines, as a
consequence of which the portfolio of assets under own management
improved on the position as at 31 December 2007 to reach 19.9 billion
euro (19.8 billion euro). Ordinary income excluding interest on
deposits remained virtually unchanged at 627.5 million euro
(635.3 million euro), a testament to the fact that Hannover Re is
correct in pursuing an investment policy geared to generating stable
ordinary income. Although movements on bond markets led to a decrease
in unrealised losses in the available-for-sale portfolio of
fixed-income securities in the third quarter relative to the first
half-year, unrealised losses of 283.9 million euro (103.4 million
euro) still remained. Unrealised gains in the equity portfolio stood
at 7.3 million euro (191.0 million euro) as at 30 September 2008. The
bulk of the realised gains totalling 204.3 million euro
(164.3 million euro) resulted from the tactical shortening of
durations in the US dollar portfolio in the first quarter. This
contrasted with realised losses of 127.2 million euro (60.1 million
euro).

Investment income was adversely impacted by the need to take
considerable write-downs on equities of 355.3 million euro
(8.4 million euro); the hedges put in place in the first quarter on
roughly a fifth of the portfolio nevertheless prevented even more
extensive value adjustments. Write-downs on fixed-income securities
amounted to 77.3 million euro. Net income from total investments
consequently deteriorated by 56.7% to 370.4 million euro
(855.5 million euro).

Outlook
While the treaty renewals that took place as recently as July in the
United States had pointed to a softening market in non-life
reinsurance, Hannover Re anticipates a trend reversal in view of the
present crisis on financial markets. Looking ahead to further
developments in non-life reinsurance, Hannover Re is optimistic. "In
light of the capital depletion triggered by the financial market
crisis - which has also made itself felt throughout the insurance
industry - we expect to see stronger demand for reinsurance and hence
hardening of the markets", Mr. Zeller explained. This will lead to
rate increases - which will be substantial in some areas - and the
outcome of the 2009 renewals is therefore expected to be favourable.
The October gatherings of reinsurers and their clients held every
year in Baden-Baden and the United States also demonstrated that a
trend reversal is on the horizon. Hannover Re is very well placed to
profit from these developments.

For the full 2008 financial year the net premium volume in non-life
reinsurance is likely to be curtailed by movements in exchange rates
and should therefore contract slightly.

Hannover Re's assessment of its business prospects in life and health
reinsurance remains favourable. In the United Kingdom the company is
well diversified: in addition to conventional risk-oriented business
and its focus on enhanced annuities, Hannover Re is now also
increasingly active in business with pension funds - a subsegment
that is likely to become a growth driver in the coming years.
Similarly, the company sees very attractive business prospects in the
area of health insurance covers for seniors in the United States.
Thanks to its good worldwide positioning in life and health
reinsurance the company is looking to sustained favourable
profitability, while growth in premium volume will be heavily
dependent on exchange rate movements affecting the currencies most
relevant to our business, such as the pound sterling, US dollar and
Australian dollar. With this in mind, Hannover Re anticipates
double-digit growth in the original currencies for 2008.

Hannover Re expects the net premium volume booked by the Group in the
full financial year to be roughly on the level of the previous year.

In spite of the conservatively oriented asset portfolio investment
income will fall significantly short of the previous year due to the
protracted crisis on the international markets. In response to the
turmoil on stock markets Hannover Re realised losses of around
200 million euro in October so as to reduce its equity exposure. This
leaves only a minimal share portfolio, the bulk of which is hedged;
as things currently stand, then, Hannover Re can no longer be
affected by the historically unprecedented volatility. As far as the
volume of investments is concerned, it is Hannover Re's expectation
that the level of the previous year can be maintained in view of the
continuing positive cash flow from underwriting and the renewed
strength of the US dollar.

For the fourth quarter - given a normal catastrophe loss experience -
Hannover Re considers a break-even result after tax to be attainable.
This assessment makes no allowance for the use of accounting policy
options or flexibility with respect to valuation measurements.

For further information please contact:

Press and Public Relations / Investor Relations:
Stefan Schulz (tel. +49 / 511 / 56 04-15 00,
e-mail: stefan.schulz@hannover-re.com)

Press and Public Relations:
Gabriele Handrick (tel. +49 / 511 / 56 04-15 02,
e-mail: gabriele.handrick@hannover-re.com)

Investor Relations:
Klaus Paesler (tel. +49 / 511 / 56 04-17 36,
e-mail: klaus.paesler@hannover-re.com)

Please visit: www.hannover-re.com

Hannover Re, with a gross premium of around 8 billion euro, is one of
the leading reinsurance groups in the world. It transacts all lines
of non-life and life and health reinsurance. It maintains business
relations with more than 5,000 insurance companies in about 150
countries. Its worldwide network consists of more than 100
subsidiaries, branch and representative offices in around 20
countries with a total staff of roughly 1,800. The rating agencies
most relevant to the insurance industry have awarded Hannover Re very
strong insurer financial strength ratings (Standard & Poor's AA-
"Very Strong" and A.M. Best A "Excellent").

Disclaimer:
Some of the statements in this press release may be forward-looking
statements or statements of future expectations based on currently
available information. Such statements are naturally subject to risks
and uncertainties. Factors such as the development of general
economic conditions, future market conditions, unusual catastrophic
loss events, changes in the capital markets and other circumstances
may cause the actual events or results to be materially different
from those anticipated by such statements. Hannover Re does not make
any representation or warranty, express or implied, as to the
accuracy, completeness or updated status of such statements.
Therefore, in no case whatsoever will Hannover Re and its affiliate
companies be liable to anyone for any decision made or action taken
in conjunction with the information and/or statements in this press
release or for any related damages.

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