Euler Hermes first semester 2008 results
First semester 2008: Euler Hermes turnover grows by 5.5% and net result progresses to € 122.3 million end June 2008 compared to € 231.2 million end June 2007
On 28 July 2008 the Management Board presented to the Supervisory Board the consolidated results for the first half 2008. The results have been reviewed by the auditors and the Audit Committee.(Paris, 28/07/2008)
“The second quarter 2008 confirms the slowdown of global economic growth which started at the end of 2007, impacting Euler Hermes’ activities and leading to an increase of the claims ratio. The claims ratio of the second quarter 2008 stands at 64.6% compared to 62.9% for the previous quarter. This is in line with the outlook given by Euler Hermes. At the same time, the combined ratio improved from 83.1% in the first quarter of 2008 to 81.9% in the second quarter of 2008, thanks to strict cost controls”, states Clemens von Weichs, Chairman of the Euler Hermes Board of Management.
“Furthermore, from a commercial perspective, the turnover in the first half of 2008 grew by 5.5% at constant exchange rates, in line with the turnover growth of the first quarter of 2008 (5.4%).”
1. Business review by geographical region
The majority of Euler Hermes’ European business units have demonstrated positive growth. Specifically the United Kingdom (+10.6%), the Netherlands (+12.9%) and the Nordic countries (+6.8%) grew very dynamically.
In the United States the business is facing a strong slowdown, with a negative growth of -1.5 % for the first semester 2008. This situation can be explained by more restrictive risk and commercial underwriting implying overall reduction of exposure and affecting the insured turnover volume, as well as the cancellation of unprofitable contracts. Premium growth is also affected by the slowdown in policy holders’ turnover growth.
The regions where Euler Hermes pursued its international expansion (Eastern Europe, Southern Europe, Latin America and Asia) contributed with a dynamic growth rate of 18.2%, at constant consolidation and exchange rates.
2. Operating income
Operating income amounts to €201.5 million, decreasing by 43.9% compared to end of June 2007. This evolution is due to an increase of the combined ratio to 82.5% (compared to 63.3% at the end of June 2007) and to a decrease in the financial income by 36.4% mainly due to lower capital gains in 2008 compared to the same period in 2007.
As part of the net combined ratio, the claims and cost ratios show the following evolution:
• The net claims ratio increased by 18 points, from 45.8% at the end of June 2007 to 63.7% at the end of June 2008. This is due to an 8 points increase on claims of the attachment year 2008, rising from 57.9% at the end of June 2007 to 65.8% at the end of June 2008, and lower runoff decreasing from 12.1% to 2.0%. North America and Southern Europe are the regions that are suffering most from the increase in claims. Euler Hermes also notices an increase of the claims rates in the other European countries. The net claims ratio slightly increased during the second quarter of 2008 (64.6%) compared to the first quarter of 2008 (62.9%) due to higher claims in the UK and in Italy.
• The net cost ratio moves up to 18.8% compared to 17.5% at the end of June 2007 mainly due to the decline of reinsurance commissions received. The cost ratio of the second quarter of 2008 is lower than the cost ratio end of March 2008 (20.3%) due to the strict costs management.
Net financial income, at the end of June 2008, slightly decreased by 7.9 % compared to the first semester of 2007.
During the second quarter of 2008 Euler Hermes reduced its equity exposure and realised capital gains of €31.4 million. The unrealised capital gains on the portfolio add up to € 35.6 million end of June 2008, equal to 17.5% of the market value of the portfolio as of 30 June 2008.
At the end of June 2008 the market value of the financial portfolio was €3,305 million compared to €3,497 million as of 31 December 2007, decreasing by €193 million. The decrease was mainly due to dividends paid out during the second quarter of 2008.
The portfolio also suffered from a decrease in unrealised capital gains (€-130 M). The decrease is tied to the sharp fall in the equity markets and the rates increase which affected the market value of the portfolio.
3. Net income, group share
After financial costs and taxes, Euler Hermes posted a net income of €122.3 million, compared to €38.4 million at end March 2008.
4. Shareholders’ equity
The Group’s shareholders’ equity totalled €1,847 million at the end of June 2008 compared with €2.058 million at the end of 2007. This 10% decrease is principally due to the dividends paid out during the second quarter of 2008.
5. Outlook
For the following months Euler Hermes forecasts that the slowdown in OECD countries will continue. The sharp increase in energy, raw material and food prices as well as the tightening of financial conditions has an impact on both consumers and companies. The slowdown in the construction sector and the drop of household consumption are two very visible factors of the deteriorating economic environment. The consequence of all these elements is a rise in overdue and business insolvencies.
As far as the countries which are already affected by the economic slowdown are concerned (US, UK, Italy, Spain…) Euler Hermes has taken the appropriate measures in terms of credit risk underwriting and is also reviewing the commercial conditions in the contracts.
As of today, Germany and France have performed better than the other European countries. However these countries are now affected by the current economic slowdown. In order to limit the impact Euler Hermes is taking all the necessary measures in terms of risk prevention and commercial underwriting in these two countries.
In the case of a worsening economic slowdown, all the measures taken should enable Euler Hermes to have a customer portfolio in line with the new market conditions.
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