Hannover Re exceeds FY19 income target, losses dent P&C result

German reinsurance giant Hannover Re has reported a more than 21% rise in net income for 2019 as the performance of its life & health (L&H) reinsurance operation more than offset the impacts of losses on its property & casualty (P&C) reinsurance result.

The reinsurer announced in the third-quarter of 2019 that it had raised its full year group net income target to more than EUR 1.25 billion in spite of the impacts of catastrophe losses.

The reinsurer’s P&C unit was hit by numerous large catastrophe events in the year, but despite this, Hannover Re has reported net income of EUR 1.28 billion for the year, so above its raised target.

The reinsurer notes that global P&C reinsurance remained “intensely competitive” in 2019 and as in the previous two years, Hannover Re incurred significant major losses in the last financial year.

At EUR 194.7 million, the largest loss came from Hurricane Dorian. Typhoon Faxai and Hagibis resulted in a cost of EUR 183.3 million and EUR 83.8 million, respectively. Furthermore, the reinsurer set aside EUR 85.7 million for the insolvency of Thomas Cook.

Overall, Hannover Re’s total net major loss expenditure for the year totalled EUR 956.1 million, which is above the firm’s large loss budget for the year of EUR 875 million. As a result, for 2020 the reinsurer has raised its major loss expenditure budget to EUR 975 million. Of the total for the year, more than EUR 636 million came from natural catastrophe losses, and EUR 319.6 million from man-made losses.

A closer look at the firm’s catastrophe experience during the year and it’s clear that Hannover Re lowered its gross catastrophe losses by more than 36% thanks to its use of retrocessional protection.

As a result of the losses and also prior year loss development, most notably for Typhoon Jebi, Hannover Re’s combined ratio weakened from 96.5% in 2018 to 98.2% in 2019, coming in higher than the targeted level of no more than 97%.

For 2019, the P&C unit recorded an underwriting result of EUR 235.4 million compared with EUR 372.8 million in 2018, while net profit in the segment fell by more than 6% to EUR 871.7 million.

“We have achieved a record result and thereby once again demonstrated our profitability, even though 2019 was another year of relatively high losses. We are again able to offer our shareholders the prospect of an attractive dividend including a special distribution, but we are also retaining the necessary flexibility to invest further in our profitable growth,” said Hannover Re’s Chief Executive Officer (CEO), Jean-Jacques Henchoz.

Throughout the year, the reinsurer was able to take advantage of attractive business opportunities and against this backdrop, Hannover Re grew its total gross written premiums by almost 18% to EUR 22.6 billion. At the same time, the level of retained premium decreased from 90.7% to 90%, while net premiums earned grew by more than 14% to EUR 19.7 billion.

By expanding its premiums so much and keeping its retention virtually unchanged, the reinsurer is well placed to again take advantage of attractive business opportunities, given the higher reinsurance pricing available this year as the market continues to shift and react to losses.

Within its P&C segment, gross premiums volume increased by 23.4% to EUR 14.8 billion which the firm says was “significantly above expectations”. Net premiums earned jumped by 18.5% within the segment to EUR 12.8 billion.

Additionally, Hannover Re’s L&H unit performed well in the year, with net profit in L&H reinsurance increasing to EUR 471.6 million against EUR 185.9 million a year earlier.

“We can look back on an excellent development in our life and health reinsurance portfolio. As announced, we generated a significantly improved result. At the same time we are benefiting from additional business opportunities available to financially strong reinsurers – including in the area of financial solutions, where we offer our clients tailor-made reinsurance solutions designed to improve their solvency, liquidity and capital position,” said Henchoz.

Looking forward, and as well as a higher large loss budget for 2020, Hannover Re has also said that it expects to expand its premiums in total business by around 5%. Overall, the reinsurer is anticipating group net income of around EUR 1.2 billion for the year.

“The positive momentum from the 1 January treaty renewals should accelerate over the course of the year. This will be reflected in further improvement in prices and conditions for strongly capitalised reinsurers, which gives me confidence that we shall achieve our goals for the current financial year,” said Henchoz.

The reinsurer announced back in February that it achieved a 2.3% rate increase across its renewal book at the January 1st renewals, and it’s clear that the firm is expecting to be able to capitalise on more opportunities in 2020 against a backdrop of improving reinsurance market conditions.