Reinsurance firm Hannover Re has set up an initial EUR 220 million net reserve for losses from the Covid-19 pandemic, but warns that it finds it impossible to quantify the potential full impacts to its business across the P&C and life sides.
Commenting on the reinsurers first-quarter 2020 results, CEO Jean-Jacques Henchoz explained, “”In the first quarter we achieved a result that on the whole lived up to our expectations
“Nevertheless, we too will not escape the effects of the coronavirus crisis unscathed. Even though it is currently impossible to quantify the concrete impacts on reinsurance and financial markets, our capital resources are geared to managing such extreme events.”
The reinsurer has modelled the potential effects of the pandemic on its portfolio and set the EUR 220 million of reserves as a response to this, to cover the claims it currently expects.
However, this figure is likely to be only the start, given the significant challenges reinsurance companies face in estimating the full impacts of an ongoing and unprecedented event.
Hannover Re said that its capital adequacy ratio had dipped from 251% at the end of 2019 to between 220% and 230% at the end of March 2020, so still above the limit of 180% and the threshold of 200%.
Hannover Re sought out growth in the first-quarter, with its reinsurance premiums underwritten rising by some 9.4% to EUR 7 billion.
Operating profit fell by 5.2% on the prior year though, to EUR 426.6 million, but net income across the group was up 2.5% to EUR 300.9 million.
In property and casualty reinsurance, despite “unchanged intense competition prevailing in numerous markets and lines of business” Hannover Re grew its gross written premiums by 13.5% to EUR 5 billion.
However, the company noted its disappointment on rates, saying that “Rates for catastrophe covers nevertheless remained on a low level, especially in Japan, Latin America and the Caribbean, and there is therefore still a need for improvements.”
Major loss expenditure was elevated by the Covid-19 pandemic reserves that were set, so the total came out at EUR 283.6 million, up considerably on the prior years EUR 59.0 million.
Other catastrophe loss costs suffered in P&C reinsurance in Q1 2020 included the bushfires in Australia at EUR 22.4 million, storm Sabine (also known as Ciara) in Europe at EUR 17.6 million and a hailstorm in Australia at EUR 15.1 million.
The P&C reinsurance combined ratio just bettered break-even at 99.8%, while the underwriting result was just EUR 7.2 million, down significantly on the prior years EUR 124.8 million.
Interestingly, in life and health reinsurance, Hannover Re noted that “Negative effects such as excess mortality due to the coronavirus have not been observed in the first quarter.”
This is interesting as other major mortality reinsurers are reporting elevated levels of mortality in their results, see RGA Re.
It’s possible these just haven’t flowed through to Hannover Re as yet, or that its portfolio is more weighted on Europe and mortality increases here haven’t yet been fully accounted for. However, it is to be expected that the reinsurer will see some impacts from Covid-19 in its life and mortality business over the rest of the year.
Looking ahead, CEO Henchoz said, “”Even though we are unable to provide specific guidance for our full- year net income in the present situation, we are well placed to stand by our customers’ side in these difficult times.
“Among other things, as a financially robust partner, we are in a position to deliver reinsurance solutions that support the solvency, liquidity and capital position of our clients.”
Hannover Re also gave an update on the April reinsurance renewals, saying that it increased its treaty premium volumes by an impressive 25.1%.
The company has increased its major loss budget to account for the premium growth it has been experiencing, lifting it by EUR 100 million to EUR 950 million for 2020 as a whole.