* Q2 net doubles to nearly 203 million euros, above expected
* Investment income doubles to 371 million euros
* Return on investment of 4 percent possible in 2009 -CFO
* To raise equity holdings to 5 percent medium term -CFO
* Shares up over 4 percent at 11-month high
(Adds CFO, analyst comment, detail, background, shares)
By Jonathan Gould
FRANKFURT, Aug 6 (Reuters) - Hannover Re beat forecasts by doubling earnings in the second quarter as income from investments and premiums surged, sending its share up over 4 percent to an 11-month high.
The world's fourth-biggest reinsurer said on Thursday quarterly net profit rose to 202.9 million euros ($292 million) from 100.8 million in the year-earlier quarter, well above the 156 million average in a Reuters poll of analysts.
"We are therefore well on track to generate the forecast return on equity of at least 18 percent for the full 2009 financial year," Chief Executive Ulrich Wallin said in a statement.
The statement contrasted with results from Swiss Re which on Wednesday showed a surprise net loss of 381 million Swiss francs ($358.8 million) for the second quarter after charges totalling 2.1 billion.
Hannover Re Chief Financial Officer Roland Vogel told Reuters a return on investment of at least 4 percent was possible this year, although the company is maintaining guidance at 3.4 to 3.8 percent.
"We want to hold 5 percent of our investments in equities in the medium term," Vogel said, echoing other reinsurers such as Munich Re which are cautiously increasing equity holdings but have ruled out returning to levels seen before the financial crisis.
The financial market rebound was easing the squeeze on capital at Hannover Re's insurance company customers, taking the previous strong demand for reinsurance slightly off the boil, but overall demand was still rising, Vogel said.
Hannover Re said reinsurance contract renewals in June and July went well, but it did not see the price increases expected in all areas and thus cut exposure in some casualty segments and in catastrophe cover in the United States and Japan to maintain profitability.
FOCUS ON PROFITS
"We are mainly focusing our activity on segments where prices are rising," Vogel said, adding that the company expected to break even in its credit and surety business in 2009, despite a rise in claims induced by the global economic crisis.
There had been little in the way of major damage claims so far in the third quarter and the company saw no reason to change its overall earnings guidance for the year, Vogel said.
Gross premiums written rose by nearly 40 percent in the quarter, helped by acquisitions as well as organic growth, while net investment income doubled on the back of write-ups on holdings of U.S. corporate bonds.
Hannover Re, in which German insurer Talanx holds a 50.2 percent stake, has seen its shares rise by nearly 30 percent so far this year, outpacing a 5 percent gain in the DJ Stoxx index of European insurers.
The stock was up 3.9 percent at 29.08 euros by 0826 GMT, outpacing a 1.9 percent rise in the sector index.
"Given the strong quarterly result we will probably increase our EPS estimate for fiscal year 2009 and possibly our fair value," DZ Bank analyst Torsten Wenzel said in a note to clients, adding he expected to confirm his "buy" recommendation on the shares.
Hannover Re has forecast earnings of at least 5 euros per share this year. It posted a 127 million euro net loss in 2008 as its investments were crushed in the financial crisis.
According to StarMine, which weights analysts' forecasts according to their track record, Hannover Re trades at 6.1 times 12-month forward earnings, a discount to Munich Re's multiple of 7.7 and Swiss Re's 10.5.
Strong investor demand for Hannover Re's renewed catastrophe bond Eurus II made the company optimistic that planned transactions later this year would also go well, Vogel said.
Hannover Re placed the 150 million euro bond, which provides windstorm risk cover in seven European countries, with institutional investors in Europe and North America last month. That was twice the 75 million euros originally planned. (Additional reporting by Arno Schuetze in Hanover; Editing by David Holmes) ($1=.6948 Euro) ($1=1.062 Swiss Franc)