Hannover Re records Group net income of 549 million euros in Q3 despite substantial nat cat losses

Hannover Re reported on Wednesday a Group net income of 548.9 million euros for the third quarter of the year ending Sept. 30, despite an above-average burden of catastrophes losses.

The Group net income was down from 791.9 million euros in the third quarter of 2016 due to heavy loss expenditure from hurricane and earthquake events, Hannover Re noted in a statement. “After years of moderate losses, we saw an accumulation of severe natural disasters in the third quarter,” said the reinsurer’s chief executive officer, Ulrich Wallin. Group net income in the third quarter was positively influenced by the liquidation of the portfolio of listed equities, the statement added.

The combined ratio in property and casualty reinsurance increased 9.4 points to 104.4% in the most recent quarter from 95% in Q3 2016. “The supply of reinsurance coverage continued to exceed demand in the third quarter, leaving prices and conditions under sustained pressure,” the statement said. “Hannover Re was nevertheless successful in writing profitable business and thus generating further growth in all the rounds of renewals during the year. This was similarly evident in the treaty negotiations as at 1 June/1 July 2017, when parts of the North American portfolio, natural catastrophe risks, a large portion of agricultural risks as well as business from Latin America and Australia came up for renewal. Despite our margin-oriented underwriting approach, we generated good growth for the entire renewed property and casualty reinsurance portfolio.”

P&C re gross written premiums (GWP) increased by 15.2% as of Sept. 30, 2017. Net premium earned (NPE) reached 6.8 billion euros up from 5.9 billion euros in Q3 2016.

According to the statement, the total expenditure incurred by the company from large losses at Sept. 30 added up to 894.3 million euros compared to 393.2 million euros in the third quarter of 2016, as Hurricanes Harvey, Irma and Maria and two serious earthquakes in Mexico took their toll. The large loss budget of 623 million euros envisaged for the first nine months was thus exceeded by around 270 million euros, the statement said, adding that the underwriting result consequently deteriorated to -309.1 million euros compared to 275.5 million euros in the prior-year quarter.

The GWP for the Hannover Re Group increased by 8.3% to 13.5 billion euros in the most recent quarter, up one billion euros from 12.5 billion in Q3 2016. NPE rose by 7.2% to 11.5 billion euros from 10.8 billion euros in the third quarter of 2016.

In life and health reinsurance, Hannover Re realized non-recurring losses of around US$50 million in Q3 2017, up from 45 million euros in Q3 2016, from the commutation of loss-making treaties as part of its portfolio management activities. GWP contracted slightly by 0.9% to 5.3 billion euros. NPE declined 1.1% to EUR 4.8 billion.

“While Hannover Re’s result has been adversely impacted by the losses from natural disasters in the third quarter, they will not have any lasting effect on the company’s profitability or capital position,” the reinsurer suggested in the statement. “On the contrary: the recent loss events should cause market conditions to improve again for reinsurers. Rates for catastrophe risks, in particular, are now likely to move higher and should generally prompt positive movements in other lines as well.”

Bearing in mind the developments in the third quarter, Hannover Re now anticipates Group net income of around 800 million euros for the full financial year. “This is conditional upon major loss expenditure in the fourth quarter not significantly exceeding the budgeted amount of 200 million euros and assumes that there are no unforeseen distortions on the capital markets,” the statement added.

For the 2018 financial year, Hannover Re expects single-digit growth in gross premium based on constant exchange rates. The return on investment is forecast to be around 2.7%, with Group net income coming in at more than 1 billion euros. “All statements are subject to the proviso that major loss expenditure remains with the budgeted level of 825 million euros and that there are no unforeseen distortions on capital markets,” the statement concluded.