Hannover Re, one of Europe’s big four reinsurers, has announced a rise in net income for the full year 2022, although the firm’s property and casualty (P&C) combined ratio deteriorated to 99.8% as large loss expenditure exceeded expectations for the sixth consecutive year.
Group-wide, net income rose 14.2% year-on-year to the record level of €1.41 billion, achieving the guidance that had been detailed in November 2022.
Growth was strong across the business in 2022, with gross written premium (GWP) booked by Hannover Re expanding by 19.9% to €33.3 billion, compared with €27.8 billion a year earlier. Net premiums earned rose 22.9% to €29.7 billion.
Alongside the higher net income, operating income improved by more than 20% to €2.1 billion in 2022, against €1.7 billion in 2021.
Within the company’s P&C reinsurance business, Hannover Re notes “gratifying growth” and significantly improved prices and conditions in some areas amid the harder reinsurance market. The firm says that clear improvement in prices and conditions was also sustained in the renewals as at 1 January 2023.
P&C GWP increased by over 26% in 2022 to €24.2 billion, while net premiums earned rose more than 30% to €21.6 billion.
However, for the sixth year in a row, the net cost of large losses in 2022 surpassed expectations, adding €1.7 billion, so clearly above the budgeted level of €1.4 billion.
2022 losses include Hurricane Ian at a net cost of €322 million, the severe flooding in Australia at a net cost of €233 million, and winter storm Ylenia in Central Europe at a cost of €107 million. Additionally, Hannover Re booked an IBNR reserve of €331 million for possible losses from the war in Ukraine.
Losses from the previous year, including amounts of €106 million for the drought in Brazil and €54 million for floods in Malaysia, took an additional toll on the result, says the reinsurer.
Hannover Re also says that losses incurred from the global pandemic can now be better quantified for P&C reinsurance. The firm notes a positive run-off in the credit, surety and political risks line. On the flip side, pandemic-related losses in accident and health insurance in the Asia-Pacific region were substantially higher than expected. All in all, these developments led to a change of €269 million in 2022.
Owing to the high amount of large losses, the combined ratio for P&C reinsurance deteriorated from 97.7% in 2021 to 99.8% in 2022.
The reinsurer adds that the underwriting result including interest on funds withheld and contract deposits totalled €46 million in P&C reinsurance, compared with €383 million in 2021.
The unit’s operating profit fell 10.6% to €1.4 billion, as the contribution made to Group net income fell by almost 19% to €880 million.
Jean-Jacques Henchoz, Chief Executive Officer of Hannover Re, commented: “In the 2022 financial year we once again demonstrated Hannover Re’s resilience. The environment in which we are operating remains challenging. Property and casualty reinsurance, in particular, saw heavy losses in 2022 from natural catastrophes, the war in Ukraine and the pandemic. Thanks to good profit contributions from the investments and from life and health reinsurance, we were nevertheless able to deliver a pleasing Group net income. Building on this success, we can offer our shareholders the prospect of an even more attractive dividend.”
In life and health (L&H) reinsurance, costs related to the COVID-19 pandemic came down from €582 million to €276 million, with the majority of losses attributable to mortality covers in the United States, the largest market for mortality insurance products.
“The pandemic-related strains contrasted with positive income of EUR 87 million. This derived from an extreme mortality cover that Hannover Re has placed on the capital market in regular tranches since 2013,” explains the firm.
Within L&H reinsurance, GWP increased 5.8% to €9 billion, as net premiums earned rose 6.9% to €8 billion. The unit’s operating profit tripled to €737 million compared with €223 million a year earlier. The contribution made by L&H reinsurance to Group net income reached a record €588 million.
On the asset side of the balance sheet, Hannover Re’s portfolio of assets under own management increased from €56.2 billion in 2021 to €56.9 billion in 2022. Investment income from assets under own management grew by 8.9% to €1.8 billion.
Looking forward, Hannover Re expects to grow its reinsurance revenue in total business by at least 5% assuming constant exchange rates. Based on the treaty renewals as at 1 January 2023, the currency-adjusted growth in reinsurance revenue should again be stronger in P&C reinsurance than in L&H reinsurance.
The firm anticipates a contribution of around €1.6 billion to the operating result (EBIT) from P&C reinsurance in 2023, with L&H reinsurance set to contribute around €750 million.
Group net income is expected to hit at least €1.7 billion in 2023, conditional on major loss expenditure not significantly surpassing the budgeted level of €1.725 billion, and also assumes that there are no exceptional distortions on capital markets, and the Covid-19 pandemic has no further material effect on the result in L&H reinsurance.
“In view of advancing climate change, considerable expenditures for large losses and protracted geopolitical conflicts, the risk situation worldwide will remain challenging for the foreseeable future,” said Henchoz.
“Against this backdrop, Hannover Re’s solid and reliable reinsurance protection will continue to be highly sought-after among our clients. At the same time, though, our own resilience will be called on even more than it has to date. With the significant improvements in prices and conditions obtained in the 1 January renewals, we have put in place a crucial basis for meeting these challenges. My assessment of Hannover Re’s sustained earning power is correspondingly upbeat. This optimism is reflected not least in another increase in the ordinary dividend,” he added.
