Canadian Underwriter

Hannover Re sees dip in net income, lower gross written premiums for 2016 H1 compared to 2015 H1

August 4, 2016   by Canadian Underwriter

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Hannover Re saw net income fall 8.6% to 486.1 million euros for the first half of 2016 from 531.9 million euros in the prior-year half, but remains confident the company is on track to achieve its full-year target of at least 950 million euros.

The operating profit as of June 30, 2016 was also down to 745.2 million euros. “The figure for the comparable period (789.4 million euros) had been assisted by a special effect in life & health reinsurance amounting to 39 million euros,” notes a statement issued Thursday by Hannover Re.

The Group’s gross written premium (GWP) decreased 3.5% to 8.3 billion euros for the first six months of 2016 compared to 8.6 billion euros for the same period of 2015.

“This figure is in line with expectations, especially bearing in mind the intense competition in property & casualty reinsurance,” the statement notes.

Hannover Re Group Results for 2016 H1

Hannover Re Group Results for 2016 H1

GWP in p&c reinsurance contracted 6.9% to 4.6 billion euros in the first half of 2016 compared to 5.0 billion euros in the first half of 2015. “For us, it is more important to preserve the profitability of the business than to boost premium income,” says Ulrich Wallin, Hannover Re’s chief executive officer.

The picture was more positive in terms of net premium earned (NPE), which increased 2.1% to 7.2 billion euros for 2016 H1 compared to 7.0 billion euros for 2015 H1. Adjusted for exchange rate effects, Hannover Re points out, the increase in NPE would have been 4.3%.

With regard to p&c reinsurance, NPE was down 1.4% to 3.8 billion euros for the first half of 2016 compared to 3.9 billion euros for the first half of 2015.

Hannover Re points to half-year major losses considerably higher than in the comparable period and higher-than-expected losses for the second quarter of 2016, including related to the Fort McMurray wildfire.

“The net burden for the company at 352.7 million euros (compared to 197.4 million euros) was still within the overall bounds of expectations for the first six months,” the statement notes.

At 131.6 million euros for net account, the Fort McMurray wildfire was the most expensive single loss event for Hannover Re. The wildfire was followed by the severe earthquake in Ecuador, with a net strain of 56.9 million euros.

“There were also a number of smaller losses due to natural periods, including, for example, those caused by the series of storms that impacted Germany in May and June, as well as some man-made losses, the statement adds.

Property & Casualty Reinsurance Results for 2016 H1

Property & Casualty Reinsurance Results for 2016 H1

The major losses contributed to the underwriting result slipping to 166.4 million euros in 2016 H1, down 2.6% from 170.9 million euros in 2015 H1.

“It, nevertheless, remains on a good level,” Hannover Re reports, pointing out that the combined ratio at 95.4% is in line with the target of staying below 96% and p&c reinsurance’s operating was 560.9 million euros in the first half of 2016 compared to 583.7 million euros for the prior-year period.

On the life & health reinsurance side, Hannover Re reports that both GWP and NPE rose and the segment delivered a satisfactory performance.

Ulrich Wallin, chief executive officer of Hannover Re

Ulrich Wallin, chief executive officer of Hannover Re

“The half-yearly profit benefited overall from pleasing investment income, solid results in life and health reinsurance and an acceptable result in property and casualty reinsurance,” Wallin (pictured right) says.

“Nevertheless, increased loss expenditure in the second quarter and diminished return opportunities in the investment portfolio did lead to a smaller profit,” he continues.

Hannover Re states the general climate in p&c reinsurance remains challenging.

“In North America, rates and conditions are still under pressure owing to the absence of market-changing large losses; however, increasing indication of a bottoming out can be discerned in both the property and casualty lines. Hannover Re boosted its premium, principally owing to the expansion of existing customer relationships,” the statement notes.

“In Canada, the destructive forest fires led to the anticipated rate increases in property business, an area in which the company offered additional capacities,” the company reports.

`Looking forward, Hannover Re notes that it is well on track to achieve its targets of net income after tax of at least 950 million euros for the full 2016 financial year.

“This is condition on major loss expenditure not significantly exceeding the budgeted level of 825 million euros and assumes that there are no unforeseen distortions on capital markets,” the company adds.

Other results include the following:

  • combined ratio for the first six months of 2016, at 95.4%, remained the same as for the first six months of 2015;
  • return on equity of 11.8% beat the target despite rising average shareholders’ equity and return on investment was as planned at 2.9%; and
  • income from assets under own management were 569.2 million euros compared to 601.3 million euros.

Related: Hannover Re’s 2016 Q1 net income down without elimination of positive special effect in prior-year quarter, up 12.7% with elimination