German reinsurance giant Hannover Re has reported an improved underwriting result in its property and casualty (P&C) reinsurance segment for the first half of 2023, as large losses of EUR 607 million fell within the budgeted expectation.
Hannover Re’s H1 2023 reinsurance underwriting result improved significantly year-on-year, rising 51% to EUR 598 million from the EUR 397 million reported in the prior year period.
The P&C reinsurance combined ratio strengthened from 94.4% to 91.7% in the first half of 2023.
The improvement was supported by a decline in expenditure from large losses to EUR 607 million from EUR 850 million, falling within the budget of EUR 751 million for the first half-year period.
Last year, large losses included provisions for losses from the ongoing war in Ukraine. In H1 2023, the largest individual losses for the reinsurer include the earthquake in Turkey and Syria at a cost of EUR 257 million, extensive flooding in January in New Zealand at a cost of EUR 45 million, and the flooding caused by Cyclone Gabrielle in New Zealand, at a cost of EUR 65 million.
Hannover Re’s P&C reinsurance segment also experienced losses of EUR 42 million from severe storms in Italy in May, and a cost of EUR 36 million relates to losses driven by tornadoes in the southern U.S. in March.
Additionally, the reinsurer says that it expects losses of EUR 50 million from the recent riots in France.
After reporting large losses above budget for the sixth year in a row in 2022, Hannover Re’s large loss experience has improved so far in 2023.
Within P&C reinsurance, Hannover Re has noted improved risk-adjusted prices and conditions at this year’s renewals, during which the company’s new business CSM increased 45% to EUR 1.8 billion, while the new business loss component declined to EUR 35 million compared with EUR 235 million a year earlier.
P&C reinsurance revenue also increased year-on-year for the German reinsurance giant, by 6.6% to EUR 8.4 billion, and would have risen by as much as 7.8% at unchanged exchange rates.
Net income from investments in the P&C reinsurance segment rose 14% to EUR 625 million compared with EUR 548 million a year earlier.
At the same time, the operating profit increased by an impressive 28% to EUR 829 million in H1 2023, which puts the reinsurer “well on track to achieve the expected full-year EBIT of at least EUR 1.6 billion.”
As well as a much better performance in its P&C reinsurance business, Hannover Re’s life and health reinsurance division beat expectations in the period, with a 62% rise in the underwriting result to EUR 481 million. These factors, combined with net income from investments rising to EUR 851 million from EUR 825 million, contributed to a group-wide 18% rise in net income to EUR 960 million.
Across its entire business, Hannover Re’s underwriting result increased by a huge 56% to EUR 1.1 billion in H1 2023 against EUR 694 million in H1 2022.
Reinsurance revenue across the group rose 3.9% to EUR 12.3 billion, and would have increased by 5.4% at unchanged exchange rates.
The firm reveals that the reinsurance finance result adjusted for exchange rate effects, which includes in particular the interest accretion on technical reserves discounted in prior years, amounted to EUR -342 million, compared with EUR -205 million a year earlier.
All in all, the operating result rose 21% to EUR 1.4 billion.
“We closed the first half with a good result and are thus still on track to achieve our year-end targets,” said Jean-Jacques Henchoz, Chief Executive Officer (CEO).
“In the recent renewals we were also able to secure further – sometimes appreciable – improvements in prices and conditions, as reflected in another increase in the new business value. A selective underwriting approach remains the order of the day for us, in part because experience shows that the more eventful months of the year are still ahead of us. This prudence is exactly what sets us apart as a financially strong and reliable reinsurance partner,” he added.
Clemens Jungsthöfel, Chief Financial Officer (CFO) of Hannover Re, also commented on the results, “Our investment income delivered another important contribution to the overall result. In a volatile capital market environment the resilience and earning power of our investment portfolio once again shone through.
“Despite a pleasing rise in ordinary investment income, we have allowed for valuation corrections in our earnings forecast for the second half of the year as a precautionary move.”
Looking ahead, Hannover Re expects to grow reinsurance revenue business by at least 5% at the Group level in 2023, supported by further improvements in risk-adjusted prices and conditions at the July 1st, 2023, renewals. At these renewals, Hannover Re’s renewed business volume expanded by 12.6%, with an inflation- and risk-adjusted price increase on renewed business of 4.8%.
The reinsurer is anticipating a contribution of at least EUR 1.6 billion from its P&C reinsurance business to the operating result in 2023, and also expects life and health reinsurance to contribute at least EUR 750 million.
Overall, the carrier is expecting group net income to reach at least EUR 1.7 billion, assuming large loss expenditure does not materially exceed the budgeted level of EUR 1.725 billion for the year, as well as “no unforeseen distortions occur on capital markets and the Covid-19 pandemic does not have any further significant impact on the result in life and health reinsurance.”
Henchoz added, “The increasing losses from natural disasters and other severe events as well as persistently high inflation in some regions are driving stronger demand for reinsurance protection.
“With our focus on the long-term profitability of our portfolio I remain optimistic – despite all the challenges – that we can sustain the positive development of Hannover Re’s business in the second half of the year and achieve the goals we have set.”