Hannover Re substantially increased its Group net income in the first half of 2021 and considers itself well on track to achieve the targets set for the current financial year. At the same time, gross premiums saw further double-digit growth.
“We achieved a thoroughly satisfactory half-year result that is broadly in line with our expectations and another testament to our robust market position and excellent risk management,” said Jean-Jacques Henchoz, Chief Executive Officer of Hannover Re. “As shown by our sustained strong growth, our risk covers are highly valued by our clients in times of crisis and beyond.”
Group net income: Profitability returns to pre-pandemic level
Gross written premium for the Group increased by 10.0% to EUR 14.5 billion (EUR 13.1 billion). Growth would have reached 14.2% adjusted for exchange rate effects. Net premium earned rose by 11.0% to EUR 11.5 billion (EUR 10.4 billion). At constant exchange rates growth of 14.9% would have been recorded.
The operating profit (EBIT) on the Group level improved substantially to EUR 956.1 million (EUR 503.5 million) and was back to the level generated before the pandemic despite further Covid-19-related strains in life and health reinsurance. This was also true of Group net income, which increased to EUR 670.6 million (EUR 402.4 million). Earnings per share climbed to EUR 5.56 (EUR 3.34).
Property and casualty reinsurance: Combined ratio of 96.0% in line with expectation
In property and casualty reinsurance Hannover Re was again able to significantly boost its premium income. The profitable growth was driven by unchanged strong demand for covers from primarily highly capitalised reinsurers. These market players were able to secure considerably improved prices and conditions in the renewals during the first six months.
The gross written premium in property and casualty reinsurance showed corresponding vigorous growth of 11.9% to reach EUR 10.3 billion (EUR 9.2 billion). The increase would have amounted to 17.2% adjusted for exchange rate effects. Net premium earned climbed by 14.2% to EUR 7.8 billion (EUR 6.9 billion). Growth would have amounted to 19.2% at constant exchange rates.
The net major loss expenditure of EUR 325.9 million (EUR 737.0 million) in the first half-year was appreciably lower than in the previous year and below the budgeted level for the first six months of EUR 476 million. No further reserves were required in property and casualty reinsurance for the Covid-19 pandemic in the first half of the year. In accordance with past practice, the unutilised large loss budget within the year is allocated to the IBNR reserve, thereby creating an additional cushion for large losses in the second half of the year.
The largest individual losses were the outbreak of extreme winter weather in the US state of Texas with net expenditure of EUR 136.4 million in the first six months, an industrial loss in Germany costing EUR 34.8 million and a credit loss of EUR 20.7 million.
The underwriting result including interest on funds withheld and contract deposits amounted to EUR 316.8 million (EUR -160.7 million) for property and casualty reinsurance. The combined ratio improved sharply to 96.0% (102.3%) and was thus within the expectation of no more than 96%.
The operating profit (EBIT) in property and casualty reinsurance surged to EUR 777.9 million (EUR 290.0 million). Net income improved to EUR 592.1 million (EUR 244.7 million).
Outlook for 2021
On the Group level Hannover Re continues to expect net income in the range of EUR 1.15 billion to EUR 1.25 billion for the 2021 financial year, together with a return on investment of around 2.4% and gross premium growth for the Group in the upper single-digit percentages adjusted for exchange rate effects.
Hannover Re envisages an unchanged 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 continued comfortable level of capitalisation and Group net income within the bounds of expectations.
Achievement of the earnings guidance is dependent on major loss expenditure not significantly exceeding the budgeted level of EUR 1.1 billion and assumes that there are no exceptional distortions on capital markets.
Following the end of the second quarter parts of Germany, Belgium, the Netherlands, Switzerland and Austria were devastated by heavy rainfall and flooding. Following an initial analysis of the damage Hannover Re’s net expenditure is expected at EUR 200 million to EUR 250 million. For the second half of the year indications are also already emerging of losses from the riots in South Africa.
“The catastrophic flood events in Germany and other European regions have once again shown that the climate is changing at a tremendous pace. We shall continue to progressively expand our sustainability measures and thereby play our part in addressing climate change and limiting its impacts,” said Henchoz. “Despite all the challenges we are well on track to achieve our ambitious goals in the current financial year. Based on the figures for the first six months, I am optimistic for the development of Hannover Re’s business over the remainder of the year.”