Hannover Re expects Group net income of more than EUR 800 million for the 2020 financial year. The company increased its reserves for Covid-19-related losses in property and casualty reinsurance by EUR 100 million to a total amount of EUR 700 million as at the end of September. In life and health reinsurance the burden from Covid-19 currently stands at EUR 160 million.
“The impacts associated with the Covid-19 pandemic can be better estimated following the close of the third quarter, and we therefore believe that we are now in a position again to provide profit guidance for 2020 and 2021,” Jean-Jacques Henchoz, Chief Executive Officer of Hannover Re, said. “While we feel very comfortable with our 2020 guidance based on our prudent reserving, the outlook for the coming year is dependent on the further course of the pandemic. Movements in reinsurance prices nevertheless give us grounds for optimism.”
Group net income after nine months reaches EUR 667.8 million
The gross written premium for the Group increased by 10.9% as at 30 September 2020 to EUR 19.3 billion (EUR 17.4 billion). Growth would have come in at 12.3% at constant exchange rates. Net premium earned climbed by 9.6% to EUR 15.8 billion (EUR 14.4 billion), equivalent to 11.1% adjusted for exchange rate effects.
The operating profit (EBIT) was down 35.3% from the previous year’s level at EUR 902.9 million (EUR 1,395.4 million). Group net income contracted by 33.4% to EUR 667.8 million (EUR 1,003.2 million). Earnings per share reached EUR 5.54 (EUR 8.32).
The capital adequacy ratio, which measures Hannover Re’s risk-carrying capacity, stood at 222% as at the end of September. This level is comfortably above the internal limit of 180% and the threshold of 200%.
Property and casualty reinsurance: Major loss expenditure exceeds budgeted amount
In property and casualty reinsurance the impacts of the Covid-19 pandemic can now be considerably better estimated – at least as far as the current year is concerned. Furthermore, an increasing and sustained improvement in prices and conditions for insurers and reinsurers alike was evident in the various rounds of renewals held during the year on account of the strains associated with the pandemic, large losses and the low interest rate environment.
Gross written premium in property and casualty reinsurance grew by 14.5% to EUR 13.3 billion (EUR 11.7 billion). At constant exchange rates, the increase would have been 15.9%. Net premium earned climbed by 13.2% to EUR 10.5 billion (EUR 9.3 billion); growth would have reached 14.7% adjusted for exchange rates.
Net major loss expenditure in the first nine months came to EUR 1.1 billion. Of this total amount, EUR 700 million was attributable to Covid-19-related impacts. The largest net losses in the third quarter – aside from the pandemic – included a derecho storm in the United States costing EUR 83.9 million, Hurricane Laura in the US at EUR 64.4 million and the explosion at the Port of Beirut in an amount of EUR 67.4 million.
The combined ratio in property and casualty reinsurance consequently came in at 101.4% (98.6%). Stripping out the loss reserves relating to Covid-19 and making allowance for large loss expenditure in line with expectations, the combined ratio would have amounted to 97.6%.
The operating profit (EBIT) in property and casualty reinsurance declined by 36.0% to EUR 588.5 million (EUR 919.0 million). The contribution made by property and casualty reinsurance to Group net income fell by 34.7% to EUR 418.2 million (EUR 640.1 million).
Outlook for 2021: Group net income of EUR 1.15 billion to EUR 1.25 billion
“The Covid-19 pandemic will continue to be a concern for us in the year ahead”, said Jean-Jacques Henchoz. “That said, we already have a clearer picture of the situation now and we feel conservatively enough positioned in our assessment that we can anticipate Group net income in the range of EUR 1.15 billion to EUR 1.25 billion in the coming year. That also puts the good result of 2019 back in reach.”
In addition, Hannover Re expects to generate a return on investment of roughly 2.4% and growth in Group gross premium – adjusted for exchange rate effects – of around 5% in the coming year.
The expectations for 2021 also reflect an increased net major loss budget of EUR 1.1 billion (EUR 975 million). The adjustment is prompted first and foremost by further growth in the underlying business. As usual, all statements regarding future targets are subject to the premise that major loss expenditure remains within the budgeted level and that there are no unforeseen distortions on capital markets.
Hannover Re’s dividend policy remains unchanged for the coming financial year. The company envisages a payout ratio for the ordinary dividend in the range of 35% to 45% of its IFRS Group net income. The ordinary dividend will be supplemented by payment of a special dividend subject to a comfortable level of capitalisation and Group net income in line with expectations.
Full Report link https://www.hannover-re.com/1629410/quarterly-statement-3-20