Hannover Re forecasts up to EUR250m loss from European floods

German reinsurance giant Hannover Re has revealed in its first-half results this morning, that it is anticipating a net loss of up to EUR 250 million from the recent severe flooding across Europe and in particular Germany.

It’s important to note that this is an early estimate following an initial analysis of the damage suffered and the company is likely to secure help from its retrocessional reinsurance partners in reducing the gross claims burden from the floods.

Hannover Re reported a positive first-half of 2021, as the reinsurance company continued to grow into the firmer market conditions.

Overall gross premiums written increased by 14.2%, adjusted for exchange rate effects.

But in property and casualty reinsurance Hannover Re grew its book by 17.2%, adjusted for the same currency effects.

The company delivered a combined ratio of 96%, in-line with expectations, while its major P&C losses came in far below the prior year.

As a result, Hannover Re’s operating profit rose significantly to EUR 956.1 million, up from the prior year’s mode pandemic affected EUR 503.5 million.

Group net income rose by 67% to EUR 670.6 million, far better than thee previous first-half’s EUR 402.4 million.

“We achieved a thoroughly satisfactory half-year result that is broadly in line with our expectations and another testament to our robust market position and excellent risk management,” Jean-Jacques Henchoz, Chief Executive Officer of Hannover Re commented. “As shown by our sustained strong growth, our risk covers are highly valued by our clients in times of crisis and beyond.”

The one dampener to Hannover Re’s results are continued losses in its life and health reinsurance business due to the COVID-19 pandemic, with EUR 263.4 million losses in the first-half of the year, largely from the United States.

In P&C reinsurance at the renewals so far this year, Hannover Re said it saw “strong demand for covers from primarily highly capitalised reinsurers,” and as a result found it could “secure considerably improved prices and conditions in the renewals during the first six months.”

GWP in P&C reinsurance reached EUR 10.3 billion, which it says represents “vigorous growth” at 11.9%, or at the aforementioned 17.2% if adjusted for exchange rate effects.

Net premiums rose even faster, suggesting a high level of reinsurance business retained, rising by by 14.2% to EUR 7.8 billion, which would have been 19.2% at constant exchange rates.

Major loss net expenditure fell to EUR 325.9 million, down from H1 2020’s EUR 737.0 million, which was below the budgeted level of EUR 476 million.

No additional P&C reserves for pandemic losses were added during the first-half of the year.

The largest catastrophe loss suffered was the extreme winter weather in the US state of Texas (winter storm Uri) with losses of EUR 136.4 million, as well as an industrial loss in Germany costing EUR 34.8 million and a credit loss of EUR 20.7 million.

Where winter storm Uri is concerned, it seems Hannover Re ceded a decent proportion of the loss to its retrocessionaires, which may have included its K-Cessions sidecar capital partners.

Hannover Re said that the gross loss from this catastrophe event was almost EUR 221 million.

Overall, across catastrophes and major losses in the first-half of 2021, Hannover Re ceded over 32% of catastrophe loss impacts and 22% of losses if you include man-made events.

The total gross loss impact of catastrophes and man-made loss events was EUR 420.7 million in the first-half.

As a result, Hannover Re’s property and casualty reinsurance unit surged to a EUR 777.9 million operating profit, much better than the prior year period’s EUR 290.0 million.

After the first-half, Hannover Re continues to forecast net income in the range of EUR 1.15 billion to EUR 1.25 billion for the 2021 financial year.

The reinsurance firm highlighted some major losses for the second-half, including the floods.

The severe flooding which impacted Germany, Belgium, the Netherlands, Switzerland and Austria is expected to result in a net expenditure of between EUR 200 million to EUR 250 million, Hannover Re said.

Given the company tends to cede as much as 40% of a major catastrophe loss to retro partners, the gross impact is expected to be quite a bit higher for the reinsurer.

Hannover Re also said that “indications are also already emerging of losses from the riots in South Africa,” but did not put a figure on it.

“The catastrophic flood events in Germany and other European regions have once again shown that the climate is changing at a tremendous pace. We shall continue to progressively expand our sustainability measures and thereby play our part in addressing climate change and limiting its impacts,” Henchoz commented. “Despite all the challenges we are well on track to achieve our ambitious goals in the current financial year. Based on the figures for the first six months, I am optimistic for the development of Hannover Re’s business over the remainder of the year.”