Germany headquartered reinsurance firm Hannover Re has withdrawn its profit guidance for 2020 due to the uncertainty over claims from the Covid-19 pandemic and the capital market environment.
Hannover Re follows its rival Munich Re, which withdrew its full-year 2020 profit guidance at the start of this month.
Hannover Re explained there is “increased uncertainty” around the potential for “claims development” from the Covid-19 coronavirus pandemic.
While first-quarter 2020 results have not been significantly affected by the virus spread globally and were helped by other financial factors during the period that offset some of the impact, Hannover Re said that “they cannot be used to draw conclusions about the full financial year.”
“It is still too soon to estimate the expected negative impacts of the COVID-19 crisis over the course of the year in light of the prevailing uncertainties at this point in time,” Hannover Re said.
“Particularly the investment result as well as property and casualty reinsurance may see increased burdens.”
Hannover Re now forecasts Group net income of about EUR 300 million for Q1 2020, which is better than the prior year Q1 2019’s EUR 293.7 million.
The reinsurance companies operating profit (EBIT) is expected to be a little lower though, at about EUR 426 million compared to Q1 2019’s EUR 450.0 million.
The reinsurer said that its preliminary estimates show that its solvency ratio at the end of the first quarter was still “comfortably above the limit and threshold of 180% and 200% respectively.”
At the end of 2019, Hannover Re’s solvency ratio stood at 251%, so the above statement shows that it could have declined by a significant percentage so far, likely driven in the main by the financial market volatility and investment result, some of which will have already been recovered in April.
It’s no surprise that the major reinsurers are withdrawing their profit guidance for the full-year.
There is significant uncertainty over just how big the claims burden from the coronavirus could be for the insurance and reinsurance industry, making it very hard for companies like Hannover Re to anticipate where their profits will end the year.