March 11, 2015 by Canadian Underwriter
Hannover Re realized its best-ever financial year in 2014 – with the group’s net income increasing to 985.6 million euros from 895.5 million euros – but the reinsurer acknowledges that the general climate is likely to remain challenging in the coming year.
With the net income for 2014, “Hannover Re comfortably surpassed the record result of the previous year and its targeted year-end profit in the order of 850 million euros,” notes a company statement issued Tuesday.
Hannover Re group – made up of a Property & Casualty Reinsurance and Life & Health Reinsurance – also saw operating profit increase 19.3% in 2014, rising to 1.5 billion euros from 1.2 billion euros in 2013.
Both business groups “as well as the investment income played a part in this highest figure in the company’s history,” the statement notes. Earnings per share amounted to 8.1 euros in 2014 compared with 7.43 euros in 2013.
“The successful financial year was based on a 25% rise in net income in life and health reinsurance and the continued good underwriting result in property and casualty reinsurance,” Ulrich Wallin, Hannover Re’s chief executive officer, notes in the statement. “Furthermore, we were able to slightly improve our investment income despite the challenging market environment,” Ulrich says.
Looking specifically at the P&C Reinsurance, the gross premium volume increased 1.1% to 7.9 billion euros in 2014 compared with 7.8 billion euros in 2013. Net premium earned, for its part, increased to 7.0 billion euros in 2014 from 6.9 billion euros in 2013.
“As in the previous year, Hannover Re’s major loss expenditure was considerably lower than anticipated. This was due to the absence of sizeable natural catastrophe events and, in particular, a benign hurricane season.”
Still, there were large losses – including the aviation line, which was affected by an exceptional accumulation of losses, and storm Ela in Western Europe.
Hannover Re’s overall losses resulted in total net expenditure of 425.7 million euros in 2014 compared with 577.6 million euros in 2013. In addition, the company’s combined ratio improved to 94.7% compared with 94.9%.
Noting that worldwide p&c reinsurance faces considerable surplus capacities, “Hannover Re continues to practise a profit-oriented, elective underwriting policy in response these difficult market conditions. In 2014, for example, reduced shares in Europe and in catastrophe business were offset by more attractive new business written primarily in the Asia-Pacific region,” notes the statement.
Performance was also pleasing on the investment front, despite the low interest rates. “All in all, income from investments under own management grew by 3.9%” in 2014, the statement notes. “Including income from funds withheld and contract deposits, net investment income closed 4.3% higher at 1.5 billion euros, as against 1.4 billion euros in the previous year.”
Hannover Re reports that the portfolio of assets under own management grew substantially to reach 36.2 billion euros (compared with 31.9 billion euros) at year-end 2014. “This increase resulted from a continued very positive operating cash flow, the substantial rise in hidden reserves – especially for fixed-income securities – as well as from exchange rate effects,” the reinsurer notes.
Other results for the group, comparing 2014 and 2013, include the following:
• gross premium increased 2.9% to 14.4 billion euros from 14.0 billion euros;
• net premium earned rose to 12.4 billion euros from 12.2 billion euros;
• book value per share increased to 62.61 euros compared with 48.83 euros;
• return on equity was 14.7% compared with 15.0%; and
• currency-adjusted growth in gross premium was +2.8%.
Looking forward in 2015, Hannover Re anticipates little change in the intense competitive pressure in p&c reinsurance or in the low level of interest rates.
The reinsure continues to expect Group net income in the order of 875 million euros (based on the premise that major loss expenditure does not significantly exceed the budgeted level of 690 million euros and that there are no exceptionally adverse movements on capital markets); gross premium volume to remain stable or show low single-digit percentage growth; and asset portfolios should continue to grow, with the company aiming for a return on investment of 3.0%.