Canadian Underwriter

Hannover Re’s net income of 1.15 billion euros in 2015 represents best-ever year for company

March 11, 2016   by Canadian Underwriter

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Strong results for both property and casualty reinsurance and life and health reinsurance contributed to Hannover Re’s record profit in 2015, posting Group net income of 1.15 billion euros for the year and handily beating its profit target, notes a statement issued Thursday.

Hannover Re record highest-ever profit in 2015

Hannover Re saw Group net income increase 16.7% to 1.15 billion euros in 2015 compared to 985.6 million euros in 2014, with 2015 representing the company’s best year ever, capping four consecutive record years. The result “comfortably beat its profit target of 950 million euros,” notes the statement from the third largest reinsurer in the world, with gross premium of approximately 17 billion euros.

“A strong underwriting result in property and casualty reinsurance and sharply higher net profit in life and health reinsurance – combined with a substantial rise in investment income – are the cornerstones of our outstanding Group net income,” says Ulrich Wallin, Hannover Re’s chief executive officer. “What is even more important than the result, however, is that with the successful 2015 financial year, we have considerably improved our platform for achieving our financial goals over the coming years,” Wallin adds.

Gross premium growth climbed even more year over year than net income, increasing 18.8% to 17.1 billion euros in 2015 compared to 14.4 billion euros in 2014. Net premium earned (NPE), for its part, increased 17.5% to 14.6 billion euros from 12.4 billion euros one year earlier.

The increases were “despite the challenging general environment in the reinsurance market,” Hannover Re reports.

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2015 full-year financial results

Looking specifically at P&C reinsurance, gross premium volume surged 18.2% to 9.3 billion euros in 2015 compared to 7.9 billion euros in 2014, while NPE rose 15.5% to 8.1 billion euros from 7.0 billion euros.

“As in the previous years, the burden of large losses was moderate. The hurricane season in North America and the Caribbean, once again, passed off unremarkably in 2015. An increased number of natural disasters causing comparatively modest major loss expenditure was, however, recorded,” the company notes.

“There was also an accumulation of man-made losses, above all in the fire and marine lines. The largest single loss incurred by the insurance industry was the devastating series of explosions at the port of the Chinese city of Tianjin, resulting in a loss of 111.1 million euros for Hannover Re.”

Hannover Re reports that these and other large losses resulted in total net expenditure of 572.9 million euros in 2015 compared to 425.7 million euros in 2014, below the company’s budget of 690 million euros.

Overall, the operating profit increased 12.6% to 1.3 billion euros in 2015, up slightly from 1.2 billion euros in 2014; Group net income climbed 10.3% to a record high of 914.7 million euros, compared to 829.1 million euros a year earlier; and the net underwriting result was up 23.0% to 432.2 million euros compared to 351.5 million euros.

“Attractive opportunities for premium growth opened up in the 2015 financial year,” states Hannover Re. “Particular mention should be made here of specialty lines such as business with agricultural risks and structured reinsurance, although stronger demand also made itself felt in North America and Asia.”

With regard to L&H reinsurance, there was significant double-digit growth in 2015, driven primarily by Asian markets and longevity business, Hannover Re points out.

Gross premium rose 19.7% to 7.7 billion euros in 2015 compared to 6.5 billion euros in 2014; NPE was up 20.0% to 6.5 billion euros compared to 5.4 billion euros; the operating result soared by 53.6% to 405.1 million euros compared to 263.8 million euros; and Group net income in L&H reinsurance totalled 289.6 million euros compared to 205.0 million euros, equivalent to growth of 41.3%.

Overall, solid results for Hannover Re were thanks, in part, to major loss expenditure being 572.9 million euros lower than budgeted. The company improved its operating profit after the very good previous year by a substantial 19.7% to 1.8 billion euros in 2015 compared to 1.5 billion euros in 2014. “The result benefited from major loss expenditure that came in below budget, the favourable development of investment income and a very positive experience in life and health reinsurance,” the company statement adds.

Investment income results were also highly satisfactory. In a continued low interest rate environment, ordinary investment income improved 17.3% to 1.3 billion euros in 2015, up from 1.1 billion euros in 2014. “The key drivers here were increased exposures to real estate and high-yield fund investments as well as income from private equity investments,” Hannover Re reports.

And income from investments under own management grew by a very pleasing 15.9% as at Dec. 31, 2015 to 1.3 billion euros, again compared to 1.1 billion euros, the statement adds.

Other financial results for 2015 compared to 2014 include the following:

  • combined ratio was 94.4%, improved slightly from 94.7%;
  • book value per share was 66.90 euros compared to 62.61 euros; and
  • return on equity was 14.7%, the same as the prior year.

In terms of results for 2015 Q4, Group net income was 364.7 million euros compared to 290.2 million euros in the prior-year quarter, representing an increase of 25.7%.

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2015 Q4 results

Gross written premium (GWP), NPE and operating profit were all up in the fourth quarter of 2015 compared with the same quarter a year earlier, Hannover Re figures show.

Specifically, GWP was 4.1 billion euros, up 12.7% from 3.7 billion euros; NPE was 3.8 billion euros, up 8.9% from 3.5 billion euros; and operating profit was 565 million euros, up 50.4% from 375.5 million euros. Net underwriting result, however, was 166.6 million euros in 2015 Q4, a decrease of 11.8% from the prior-year quarter, the figures show.

For P&C reinsurance, Group net income was down 1.7% to 263.7 million euros in 2015 Q4 compared to 268.3 million euros in 2014 Q4. GWP, NPE, net underwriting result and operating profit, however, were all up.

Looking ahead, Hannover Re suggests the “general climate for reinsurers will remain challenging in the current financial year. There will likely be little change in the fierce competitive intensity or the low interest rate level.”

Nonetheless, “in view of its very good positioning in the market, the high quality of its loss reserves and its low expense ratio, the company considers itself well-placed to generate Group net income of at least 950 million euros. This is based on the premise that major loss expenditure does not significantly exceed the budgeted level of 825 million euros for 2016 and that there are no exceptional distortions on capital markets,” the statement adds.

“Our focus is on achieving a result that meets our financial targets. The development of the premium volume, on the other hand, is less of a priority,” Wallin emphasizes.

“With this in mind, the company expects – based on constant exchange rates – stable or slightly lower gross premium volume for its total business,” although asset portfolios should continue to grow – at unchanged exchange rates – “in view of the anticipated positive cash flow,” he adds.