We cherry-picked some interesting data from the latest Hannover Re financials; Group net income in the first nine months of the financial year was up by 28% which is impressive, here’s some details.
Group net income rises after nine months to EUR 856 millionGross written premium for the Group rose by 12% to EUR 21.6 billion (EUR 19.3 billion). At constant exchange rates growth would have reached 14%. Net premium earned increased by 12% to EUR 17.6 billion (EUR 15.8 billion), corresponding to growth of 14% adjusted for exchange rate effects.
While the underlying business in property & casualty and life & health reinsurance showed a stable development in line with expectations, the investments delivered a substantially better profit contribution than anticipated.
The operating profit (EBIT) on the Group level increased by 42% to EUR 1,281 million (EUR 903 million). Group net income improved by 28% in the first nine months of the year to EUR 856 million (EUR 668 million). Earnings per share thus amounted to EUR 7.10 (EUR 5.54).
Property and casualty reinsurance records sharp rise in large loss expenditurePremium income in property and casualty reinsurance once again came in substantially higher. The profitable growth was driven by unchanged strong demand for covers primarily from robustly capitalised reinsurers. As a result, Hannover Re was able to secure improved prices and conditions across a broad front in the various rounds of renewals held throughout the current financial year.
The gross written premium in property and casualty reinsurance climbed by 14% to EUR 15.3 billion (EUR 13.3 billion). The increase would have been 18% adjusted for exchange rate effects. Net premium earned rose by 15% to EUR 12.1 billion (EUR 10.5 billion). At constant exchange rates the increase would have reached 18%.
Due to significant natural catastrophes in the third quarter, net major loss expenditure increased to EUR 1,070 million (previous year: EUR 1,149 million, thereof EUR 700 million relating to Covid-19) as at the end of September and was thus substantially higher than the budgeted expectation of EUR 849 million for the first nine months.
No further reserves had to be established for the Covid-19 pandemic in property and casualty reinsurance.
The largest individual loss for net account in the third quarter was Hurricane Ida. The net payments made by Hannover Re to its customers for this event alone added up to EUR 306 million. In addition, Germany and other European countries suffered devastating flood and hail damage in the months of June and July. Further large losses in the third quarter included the civil unrest in South Africa at a cost of EUR 94 million and flooding in China in an amount of EUR 35 million.
Life and health reinsurance reports losses of EUR 404 million from the pandemicGross written premium in life and health reinsurance rose by 7% to EUR 6.4 billion (EUR 5.9 billion). The increase would have been 7% adjusted for exchange rate effects. Net premium earned climbed by 6% to EUR 5.6 billion (EUR 5.3 billion). Growth would have amounted to 6% at constant exchange rates.
Losses relating to Covid-19 in life and health reinsurance totalled EUR 404 million (EUR 160 million) in the first nine months. Of this, EUR 140 million was attributable to the third quarter. It remains Hannover Re’s expectation that these expenditures will diminish progressively as vaccination programmes make further progress.
Return on equity still above minimum target at 10.2%The shareholders’ equity of Hannover Re totalled EUR 11.4 billion as at 30 September (31 December 2020: EUR 11.0 billion). The annualised return on equity amounted to 10.2% (31 December 2020: 8.2%) and surpassed the minimum target of 900 basis points above the risk-free interest rate. The book value per share stood at EUR 94.60 (31 December 2020: EUR 91.17).
The capital adequacy ratio under Solvency II, which measures Hannover Re’s risk-carrying capacity, amounted to 239 % as at the end of September and thus remained clearly above the limit of 180% and the internal threshold of 200%.Profit guidance for 2021 confirmed despite large loss expenditureOn the Group level, Hannover Re’s expectation of Group net income in the range of EUR 1.15 billion to EUR 1.25 billion for the 2021 financial year remains unchanged. After the good investment income booked in the first nine months, Hannover Re now expects to generate a return on investment of more than 2.4% as well as growth in Group gross premium at least in the upper single-digit percentages adjusted for exchange rate effects.
“The third quarter has shown us once again how quickly an unexpectedly benign loss experience during the year can completely turn around,” said Jean-Jacques Henchoz. “Despite this, we believe we are in a position to achieve our guidance for 2021.”
Outlook for 2022: Sharp rise in earnings reflects profitable growth and cycle managementFor the 2022 financial year Hannover Re anticipates Group net income of EUR 1.4 billion to EUR 1.5 billion. The return on investment in the coming year should reach at least 2.3% and Group gross premium is expected to grow by at least 5% adjusted for exchange rate effects.
“The profitable growth and our successful cycle management in recent years will lead to a sharp rise in earnings in the 2022 financial year,” said Jean-Jacques Henchoz. “Not only that, in life and health reinsurance we anticipate that the strains from the Covid-19 pandemic will diminish appreciably as vaccination programmes make increasing progress and the underlying healthy profitability of the portfolio will once again be reflected in the result.”
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