Reinsurance firm Hannover Re has more than doubled the size of its net reserve for losses from the Covid-19 pandemic, lifting it from €220 million at the end of Q1 to now €600 million for the first-half of 2020.
The reinsurer’s CEO this morning highlighted the “still considerable uncertainty” over the eventual scale of the pandemic and how much in the way of losses it will drive to the insurance and reinsurance sector.
So far, Hannover Re has not been able to meaningfully tap its retrocession for the Covid-19 loss impact, with the vast majority (€600.1m) retained of a gross loss of €608.5 million, so only €8.5 million shared with sources of retro reinsurance capacity.
Still, despite the significant impacts from the pandemic, Hannover Re reported group net income for the first-half of 2020 of €402 million this morning, which while down on the prior year’s first-half total of €663 million, is impressive nonetheless.
“We have come through the crisis relatively well so far. This enables us to make appropriate provision for the anticipated Covid-19 losses and take account of the still considerable uncertainty surrounding the scale of the pandemic,” Jean-Jacques Henchoz, Chief Executive Officer of Hannover Re, explained. “Our business model is geared to managing such extreme events. We offer our clients and business partners our unqualified support.”
Hannover Re’s more than 170% increase in loss reserves for Covid-19 comes from the property and casualty reinsurance side of its business, so there remains a chance of it making retrocessional recoveries as these are booked as losses rather than IBNR, we’d imagine.
The company has also disclosed a €60 million worldwide loss expenditure for Covid-19 booked on the life and health reinsurance side of its business.
The reinsurer took advantage of market conditions in the first-half and grew its portfolio, in terms of premiums written, by 12.2% on a currency adjusted basis.
The company cites “increased demand for reinsurance” which it says was reflected at treaty renewals through the year so far, although it only cites “partly significant improvements in prices and conditions running into double-digit percentages.”
Overall operating profit fell 46.6% to €503.5 million for the first-half of 2020, down from the prior years €942.1 million.
In P&C reinsurance Hannover Re saw significant growth in premiums, which are up 16.3% adjusted for exchange rates for the first-half of the year.
“Hannover Re was again able to substantially grow the premium volume of its property and casualty reinsurance portfolio. Covers provided by robustly capitalised reinsurers enjoyed increased demand, with conditions showing improvement overall,” the company said.
Across its P&C reinsurance book, Hannover Re reported €737.0 million of major losses, far exceeding the €414 million budgeted for the first six months of the year.
The €600 million of Covid-19 losses make up the bulk of this, which are largely IBNR reserves at this time, but Hannover Re noted “are anticipated.”
Hannover Re said that, “The duration and intensity of the pandemic cannot be foreseen. These reserves are intended for potential additional loss payments, such as for covers in the areas of business interruption, trade credit or event cancellation.”
Adding to the catastrophe burden for the quarter, Hannover Re is expecting losses of €31.1 million for U.S. tornado related damage and €26.3 million for bushfires in Australia.
The result in P&C reinsurance is a -€160.7 million loss for the quarter, with a combined ratio of 102.3%.
Without the Covid-19 impacts, Hannover Re said that the combined ratio could have been 97.6%.
“There are still too many uncertainties associated with providing profit guidance for the full year,” Henchoz commented. “The development of the pandemic and its implications for economic growth as well as the measures taken by various governments will play a defining role in shaping our loss experience. In view of their global nature and the immense costs that can be incurred worldwide, the coverage of systemic risks is dependent now more than ever on partnership-based approaches. We stand ready to contribute our global expertise in supporting the development of innovative coverage solutions for large risks.”