Reinsurer expects net losses from Hurricane Ian to reach €276m and is reserving €331m for Ukraine-related losses
Hannover Re considers its earnings guidance for the 2022 financial year to be still achievable after the extraordinary major loss expenditure incurred in the first nine months.
“Even before the extensive devastation caused by Hurricane ‘Ian’, 2022 was a year of above-average large loss expenditure,” said Jean-Jacques Henchoz, chief executive officer of Hannover Re.
“What is more, high inflation rates are only adding to the costs of rebuilding. Our full-year earnings guidance nevertheless remains achievable. Among other things, this is possible thanks to healthy profit contributions from the investments as well as life and health reinsurance and it shows how important the interplay of diversification and risk management is.”
Series of major losses
The largest individual losses in the first nine months of the year were Hurricane Ian with a net strain of €276m, the severe floods in Australia at a cost of €211m and winter storm “Ylenia” in central Europe in an amount of €115m.
Hannover Re has also set aside an IBNR reserve of €331m for possible losses from the war in Ukraine.
Furthermore, additional reserves were established in the first nine months for sizeable losses from the past year based on corresponding loss advices, including an amount of €130m for the drought in Brazil.
For the first nine months, Hannover Re reported group net income of €871m, on the level of the previous year.
“Our good and stable earnings performance in an environment shaped by considerable natural catastrophe losses as well as our continued very robust capital adequacy ratio underscore Hannover Re’s risk-carrying capacity,” chief financial officer Clemens Jungsthöfel said.
“This establishes the foundation for our positioning as a particularly reliable and financially sound reinsurer for our clients and shareholders.”
Renewal pricing to harden after major loss burden
Against the backdrop of the resulting large loss expenditure, which the reinsurer says is ’well in excess of expectations’, high rates of inflation, the war in Ukraine… ’brisk demand for covers from financially robust reinsurers is likely to further intensify’.
Hannover Re’s net burden of large losses rose to €1.5 billion as at the end of September (up from €1.1 billion the previous year), higher than the expected level of €1.1 billion that was budgeted for the first nine months.
The company revealed it was able to secure improved prices and conditions in many areas in the current financial year’s various rounds of treaty renewals, a trend that it expects will gain added impetus in the year ahead.
Gross written premium in property and casualty reinsurance grew by 28% to €19.5 billion in the first nine months (up from €15.3 billion). The increase would have been 18.6% adjusted for exchange rate effects.
Earnings guidance for 2022 ’still achievable’
Hannover Re is keeping to its targets for the current financial year and expects gross premium on the Group level to grow by more than 7.5% adjusted for exchange rate effects as well as a return on investment in excess of 2.5%.
Following the extraordinary burden of large losses in the first nine months the Group net income is expected to be at the lower end of the €1.4 billion to €1.5 billion range.
Attainment of these targets is conditional on large loss expenditure not significantly exceeding the budgeted level in the fourth quarter and assumes that the Covid-19 pandemic does not have a major unexpected influence on the result in life and health reinsurance and that there are no unforeseen distortions on capital markets.
The anticipated significant overshoot of the large loss budget will be offset in the current financial year by, in particular, investment income from inflation-linked bonds that is above the expected level and a good underlying result in life and health reinsurance.
In the fourth quarter, too, Hannover Re expects to book a positive profit contribution from its holding of inflation-linked bonds.
Hannover Re continues to aim for an ordinary dividend at least on the level of the previous year. This will be supplemented by a special dividend provided the capitalisation exceeds the capital required for future growth and the profit target is achieved.
“Despite all the challenges facing insurers and reinsurers, significant price increases across the various lines of business are absolutely essential. Only in this way can we respond to the changed risk landscape,” said Jean-Jacques Henchoz.
“Over the coming months it is more important than ever to safeguard the profitability of our business. We are well positioned to do this thanks to our vast expertise and discipline in underwriting.”