Canadian Underwriter

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

May 10, 2016   by Canadian Underwriter

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Hannover Re’s sharply improved underwriting results in property and casualty reinsurance for 2016 Q1 – coupled with the elimination of a positive special effect in 2015 Q1 – helped the world’s third largest reinsurer post a 12.7% hike in Group net income compared to the prior-year quarter.

Group net income in the first quarter of 2016 amounted to 271.2 million euros compared to 279.7 million euros in the comparable period, notes a statement Tuesday from Hannover Re, which transacts all lines of P&C and life & health (L&H) reinsurance and is present on all continents.

But after elimination of a positive special effect from the previous year – which amounted to about 39 million euros – net income of 271.2 million euros in the first quarter of 2016 compared to 240.7 million euros in the same quarter of 2015.

For the Group overall, the statement shows gross written premium (GWP) was down 3.1% to about 4.3 billion euros in the first quarter of 2016 compared to 4.4 billion euros in the prior-year quarter; net premium earned (NPE) was 3.5 billion euros, up 3.2% from 3.4 billion euros; and operating profit was 406.7 millions euros, a 5.2% decrease from 429.0 million euros.

The improvement in Group net income was the result, in large part, to solid numbers on the P&C reinsurance side, which the company points out demonstrated “further substantial improvement after a very good previous year.” Specifically, P&C reinsurance net income was 204.3 million euros in 2016 Q1, up 19.2% from 171.4 million euros in 2015 Q1, Hannover Re reports.

In addition, GWP decreased 4.4% to 2.5 billion euros compared to 2.6 billion euros; NPE rose 4.2% to 2.0 billion euros from 1.9 billion euros (due to the change in unearned premium; if adjusted for exchange rate effects, growth would have reached 5.2%); net underwriting result was 100.3 million euros, a 31.0% hike over 76.6 million euros; operating profit was 299.7 million euros, 17.4% higher than the 255.2 million euros in the prior-year quarter; and the combined ratio improved at 94.7% compared to 95.7%.

Hannover Re released its financial results for Q1 2016

Hannover Re points out that company results were helped by major loss expenditure coming in below the estimated quarterly budget at 55.5 million euros in 2016 Q1 compared to 62.0 million euros in 2015 Q1. “The largest single loss event for the company was an earthquake in Taiwan at 15.6 million euros for net account,” the reinsurer reports.

With worldwide P&C reinsurance continuing to be fiercely competitive, Hannover Re notes, the company is responding by writing business highly selectively in accordance with its profit-oriented underwriting policy.

That approach led to P&C reinsurance GPW contracting 4.4% to 2.5 billion euros compared to 2.6 billion euros in 2015 Q1, the reinsurer notes, but adds “at constant exchange rates, the decrease would have been 3.7%.”

On the investment front, despite continuing challenging conditions because of the protracted low level of interest rates, investments were “largely unchanged after the sharp rise in 2015 at 39.1 billion euros” compared to 39.3 billion euros.

Realized gains amounted to 43.6 million euros compared to 45.0 million euros, Hannover Re notes. These gains “were on a normal level and can be attributed in large measure to regrouping activities as part of regular portfolio maintenance,” the company statement adds.

Other results for the quarter ending Mar. 31, 2016 include the following:

  • earnings per share was 2.25 euros compared to 2.32 euros;
  • the level of retained premium fell slightly from 88.9% to 87.9%; and
  • shareholders’ equity grew by 3.8% to 8.4 billion euros compared to 8.1 billion euros at the end of 2015.
Wallin Ulrich, chief executive officer of Hannover Re

Wallin Ulrich, chief executive officer of Hannover Re

The pleasing increase in Group net income for the first quarter of 2016 was driven by a strong underwriting profit in P&C reinsurance, good results in L&H reinsurance and investment outcomes, says Ulrich Wallin (pictured right), chief executive officer of Hannover Re. “The gratifying quarterly result is a good first step towards achieving the full-year profit target of at least 950 million,” Wallin suggests.

Looking forward, even though the international (re)insurance markets face challenging business conditions and low interest rates persist, “Hannover Re expects to be able to operate with sustained success even in this environment.”

The company anticipates that, based on constant exchange rates, it will see stable or slightly lower gross premium and net income after tax of at least 950 million euros for the full 2015 financial year. “This is conditional 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.”

For P&C reinsurance, specifically, “Hannover Re expects to post a good underwriting result for 2016 that should be roughly on the level of 2015. The company is aiming for a combined ratio of less than 96%.”

With regard to L&H reinsurance, “the company expects to see further improvement in the development” of its business.

In view of its selective underwriting policy and concentration on existing business, Hannover Re was able to preserve the good quality of its P&C reinsurance portfolio at Apr. 1, 2016 renewals, the company reports. “The premium volume booked from this round of treaty renewals increased by 9.1% due to profitable business opportunities,” it points out.