Hannover Re going for P&C reinsurance growth in “modestly better” market

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Hannover Re grew its gross premiums underwritten by an impressive 19.2% in the first-quarter of the year and targets further “significant” growth in P&C reinsurance this year, in a market that is sees as stable or even “modestly better.”

hannover-re-logoHowever, the market remains “intensely competitive” Hannover Re noted, hence selective underwriting is key and the reinsurer continues to target growth in structured reinsurance business where it can put its expertise to work in customised or differentiated products and solutions for its clients.

Chief Executive Officer Ulrich Wallin commented on the growth seen so far this year, “We made the most of opportunities on the property and casualty reinsurance markets and have grown our portfolio by a double-digit percentage so far.”

Overall, the premium growth of 19.2% (16.1% adjusted for exchange rates) is significant, providing Hannover Re with an enlarged portfolio across its business, much of which has been written at improved rates in property and casualty reinsurance lines.

The company ceded more of the risk out though, as retention declined to 90.4% (down from 91.3% in the prior year quarter), which could suggest a greater share of premiums were ceded to third-party reinsurance capital and retrocessionaires by Hannover Re this year.

Is this a sign that one of the largest reinsurers in the world is beginning to embrace the gross to net strategy adopted by smaller players who make greater use of third-party capital? It’s not clear at this stage but this is something that could be interesting to watch over the coming quarters.

In P&C reinsurance specifically, Hannover Re said it was able to “substantially expand its portfolio” at renewals so far this year, “even though many markets and lines continued to see surplus capacities and hence remained intensely competitive.”

“Conditions were stable or even modestly better,” the reinsurer said, with rate improvements that in some cases were seen as “very appreciable,” especially for loss affected accounts.

“Prices for covers impacted by natural catastrophes saw sizeable increase,” Hannover Re said, while structured reinsurance arrangements helped to drive its premium growth in P&C.

The P&C reinsurance book grew almost 23%, 19.4% after an exchange rate adjustment, giving Hannover Re what should prove to be a much higher returning and enlarged portfolio for the year ahead.

At the same time, large losses and catastrophe impacts only came in at EUR 59 million, far below the budgeted quarterly amount of EUR 175 million.

However, despite the growth the operating profit (EBIT) in property and casualty reinsurance came out at EUR 334.4 million, slightly down from the prior year quarter’s EUR 338.9 million.

That does suggest the enlarged book has yet to deliver on its promises for Hannover Re, or the rate improvements at 1/1 were less impressive, as you would have assumed with all that premium growth that a much higher profit could have been generated.

The net underwriting result perhaps showed what we should expect to see in future quarters though, as it did improve by over 25% to almost EUR 125 million. Although net income declined almost 7% for the P&C reinsurance business overall.

Across the Hannover Re group, so including its life and health reinsurance business, profits for the quarter rose to EUR 293.7 million, up from EUR 273.4 million in the prior year.

On life and health, Wallin commented that, “Following the exceptional strains associated with the termination of loss-making treaties in US mortality business in the previous year, earnings improved.”

Looking ahead, the reinsurer said that it “expects significant currency-adjusted premium growth at largely stable conditions based on the outcome of this year’s various rounds of treaty renewals.”

That suggests further growth in Florida and the U.S. to come at the mid-year rounds of reinsurance renewals for Hannover Re.

Wallin said that after the first-quarter, “We are well on track to achieving our year-end target in the order of EUR 1.1 billion.”

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