Global reinsurance firm Hannover Re has warned that when it reports its full-year 2023 results, its operating result for the year will be impacted by a resiliency reserve that has been set “significantly higher” than forecast in the fourth-quarter.
Hannover Re sets a property and casualty reinsurance resiliency reserve to balance its business and ensure sufficient resources are reserved for claims.
The company explained this evening, “An increase in reserves in Property & Casualty reinsurance had a significant impact on EBIT, particularly in the fourth quarter, which led to a much greater increase in the confidence level of reserves than originally planned.”
Based on initial estimates, Hannover Re said that its resiliency reserve for the end of the 2023 financial year will be significantly higher than the targeted EUR 1.7 billion (so, much higher than 2022’s EUR 1.38 billion).
As a result, Hannover Re said its Property & Casualty reinsurance operating result reached EUR 1.1 billion in 2023, well below the forecast for at least EUR 1.6 billion.
“The underlying profitability, however, developed very favourably due to the attractive market environment and was fully in line with expectations. Life & Health reinsurance contributed EUR 0.87 billion (forecast: at least EUR 0.75 billion) to the operating result,” the reinsurance company explained.
Overall though, group net income at Hannover Re increased to EUR 1.8 billion for 2023 and so the company has achieved its annual profit target, of at least EUR 1.7 billion, the reinsurer said.
Hannover Re also said its operating result (EBIT) is expected to be EUR 1.97 billion across the business for 2023, again much lower than a consensus estimate of EUR 2.40 billion.
With reserves a hot topic and strengthening being seen, this increase to reserves at one of the largest reinsurance companies in the world may create some additional nerves at what might emerge elsewhere in the industry, at less-strong firms.
It is important to note though, that by bolstering its reserves Hannover Re may better protect its future earnings, which will be looked at as a positive move.
