German reinsurance giant, Hannover Re, has reported a 33.4% reduction in Group net income for the first nine months of the year to €667.8 million, as the firm’s property and casualty (P&C) reinsurance segment fell to an underwriting loss as major loss expenditure exceeded budget in the period.
Group net income declined to almost €668 million from the €1 billion reported for the same period in 2019, while the company’s operating profit declined by more than 35%, year-on-year, to €902.9 million.
Overall, Hannover Re has reported gross written premium of €19.3 billion for 9M 2020, which represents growth of almost 11% from the €17.4 billion reported for 9M 2019. Net premium earned jumped by 9.6% to €15.8 billion.
Across the Group, Hannover Re has announced an underwriting loss of €439.2 million for 9M 2020, alongside an 11% dip in net investment income to €1.2 billion.
So far in 2020, the impacts of the ongoing COVID-19 pandemic have dented Hannover Re’s performance in P&C reinsurance and to a lesser extent, in life and health (L&H) reinsurance.
In P&C reinsurance, Hannover Re has announced that net major loss expenditure in the first nine months totalled €1.1 billion, which is above the budgeted amount of €975 million. Of the €1.1 billion total, approximately 64%, or €700 million was attributable to COVID-19-related impacts. Additionally, notes the reinsurer, the largest net losses in Q3 2020, apart from the pandemic, included the derecho storm in the US costing €83.9 million, Hurricane Laura in the US at a cost of €64.4 million, and the Beirut port explosion at a cost of €67.4 million.
As a result of the elevated level of losses, Hannover Re’s P&C reinsurance segment has reported an underwriting loss of €145.8 million and a combined ratio of 101.4% for 9M 2020, against an underwriting gain of €125.4 million and a combined ratio of 98.6% for the same period last year.
Within P&C reinsurance, gross written premiums increased by 14.5% year-on-year to €13.3 billion, while net premium earned increased by more than 13% to €10.5 billion.
Jean-Jacques Henchoz, Chief Executive Officer (CEO) of Hannover Re, commented: “The impacts associated with the Covid-19 pandemic can be better estimated following the close of the third quarter, and we therefore believe that we are now in a position again to provide profit guidance for 2020 and 2021.
“While we feel very comfortable with our 2020 guidance based on our prudent reserving, the outlook for the coming year is dependent on the further course of the pandemic. Movements in reinsurance prices nevertheless give us grounds for optimism.”
Turning to the firm’s L&H reinsurance operations, and it’s clear that COVID-19 has also had a negative impact here for the firm in 2020, albeit to a lesser extent than witnessed in P&C reinsurance.
The firm notes that in L&H reinsurance, the total burden associated with the pandemic as at the end of September 2020 reached €160 million, with concrete loss advices totalling €91 million. Hannover Re says that the large majority of this was attributable to payments for illnesses and deaths in the US.
Gross written premiums in L&H reinsurance increased by 3.6% to €5.9 billion against €5.7 billion a year earlier, while net premium earned jumped to €5.3 billion compared with €5.1 billion in 9M 2019.
The contribution made by L&H reinsurance to Group net income declined year-on-year by 26.4% to €296.6 million, says Hannover Re.
“The increase in the reserves set aside for Covid-19 in life and health reinsurance reflects our conservative reserving policy in response to the global spread of infection. Thanks to the successful remediation of our legacy US mortality book in the previous year, we can be highly satisfied with the performance of the business group despite the sharply increased risk provision,” said Henchoz.
Back in April, Hannover Re withdrew its profit guidance for 2020 in light of the ongoing COVID-19 coronavirus pandemic. However, with the firm now able to better estimate the impacts of the pandemic it has provided a new profit guidance of more than €800 million for the current year, based on available loss estimates for COVID-19.
The reinsurer states that in recent rounds of renewals in P&C reinsurance it was able to benefit from increased demand for high-quality reinsurance coverage at improved prices and conditions. Adding that on the back of a prolonged softened marketplace, it expects this trend to continue for both primary business and reinsurance.
Looking ahead to the important Jan 1st, 2021 renewals season, Hannover Re says that it expects to book increased premium income and higher prices in P&C reinsurance.
As well as reinstating a profit guidance for the current year, the firm has also provided a Group net income range of between €1.15 billion to €1.25 billion for 2021.
“The Covid-19 pandemic will continue to be a concern for us in the year ahead. That said, we already have a clearer picture of the situation now and we feel conservatively enough positioned in our assessment that we can anticipate Group net income in the range of EUR 1.15 billion to EUR 1.25 billion in the coming year. That also puts the good result of 2019 back in reach,” said Henchoz.
It’s worth noting that the expectation for next year also reflects a higher net major loss budget of €1.1 billion, which Hannover Re says is first and foremost driven by further growth in the underlying business.