Hannover Re’s P&C result hit by fourth year of above budget large losses

Global reinsurer Hannover Re fell to a loss in its property and casualty reinsurance division in 2020, as impacts from the COVID-19 pandemic drove a fourth year in succession of above budget large losses for the company.

Overall large losses, including those from the COVID-19 pandemic and global catastrophe activity, came out at almost EUR 1.6 billion for Hannover Re in 2020, up significantly from the prior year’s EUR 956.1 million and well above the large loss budget of EUR 975 million.

As a result, Hannover Re’s P&C reinsurance underwriting result fell sharply to EUR -223.5 million (down from EUR 235.4 million), while the reinsurers’ combined ratio rose to 101.6% (up from 2019’s 98.2%).

However, demonstrating the robustness of large and globally diverse reinsurance platforms, Hannover Re still reported a P&C reinsurance operating profit, although year-on-year this too fell significantly by 35.3% to EUR 831.3 million (down from EUR 1,285.8 million).

Overall Hannover Re reported that its fully year gross premiums underwritten rose by 12% in 2020, while group net income was still a very positive EUR 883 million, albeit down from 2019’s EUR 1.3 billion.

The company grew its P&C reinsurance underwriting book considerably in 2020 and continued to do so at the January 2021 renewals as well.

Jean-Jacques Henchoz, Chief Executive Officer of Hannover Re, commented on the results, “We are playing our part in overcoming the consequences of this pandemic and are contributing our expertise to the development of coverage concepts for future extreme events. As one of the largest and most financially robust reinsurers, we continue to be a reliable partner at our customers’ side.

“In the pandemic year 2020 Hannover Re achieved a very good result, thereby again demonstrating its superb risk-carrying capacity and its broad diversification. We are benefiting particularly strongly from the sustained improvement in prices and conditions on our market. With a view to maximising the available business opportunities, we have decided to omit payment of a special dividend for 2020 and instead to slightly raise the ordinary dividend.”

Overall growth in Hannover Re’s book saw gross premiums written reach EUR 24.8 billion (up from EUR 22.6 billion), a growth rate of 12.0% adjusted for exchange rate effects.

The P&C reinsurance business saw prices and conditions steadily improve at the various rounds of treaty renewals during 2020, the reinsurer said.

P&C reinsurance gross premiums written rose 13.3% to EUR 16.7 billion (EUR 14.8 billion), which would have been 15.8% growth at constant exchange rates.

The almost EUR 1.6 billion of major losses suffered in 2020 break down as 950.1 million from the COVID-19 pandemic.

Of this, the majority remains IBNR, with only EUR 330.9 million attributable to reported claims so far.

“We substantially reduced the risk of additional reserving in property and casualty reinsurance by further strengthening our IBNR reserves for Covid-19-related losses at the end of the year,” Henchoz explained. “Provided large losses remain within our expectations, this should be reflected in sharply improved profitability in 2021.”

The largest natural catastrophe losses of the year for Hannover Re included a storm that struck eastern parts of the United States at a net cost of EUR 111 million, Hurricane Laura costing EUR 87.5 million and the explosion at the Port of Beirut costing it EUR 86.6 million.

The life and health reinsurance division experienced another EUR 261.1 million of pandemic related losses, the majority of which was attributable to sickness and death benefits in the United States.

This, along with interest rate impacts, drove the operating result for life and health reinsurance down to EUR 384.8 million (from 2019’s EUR 569.9 million) for Hannover Re.

Hannover Re expects additional pandemic related loss costs to emerge in the United States for its life and health reinsurance book, but expects steps taken to restructure its US mortality book should offset much of this.

“Even though the pandemic remains an element of uncertainty, I am confident that we shall achieve all our targets for the 2021 financial year and return to the very good level of profitability recorded in 2019,” said Henchoz. “This will be supported by the sustained improvement in prices and conditions seen in property and casualty reinsurance.”

Hannover Re targets further growth in 2021, to take advantage of improved underwriting market conditions.

The reinsurer expects to grow its gross premiums written by around 5%, at constant exchange rates, while its target for group net income is between EUR 1.15 billion to EUR 1.25 billion.

The company has boosted its large loss budget for 2021 to a higher level of EUR 1.1 billion, which is likely to buffer against additional pandemic impacts.

Hannover Re is the last of the big reinsurers to report its 2020 results and they appear in-line with expectations.

They also portray growth over the last year and an expectation of further growth ahead, as these large, globally diverse reinsurance firms grow into the firmer marketplace.

Read about the fully-year 2020 results of rivals Munich Re, Swiss Re and SCOR.