Hannover Re, one of Europe’s largest reinsurers, has today announced net income of €649 million for the first half of 2022, while the firm’s property and casualty (P&C) reinsurance underwriting declined on the back of higher than expected large losses.
Group net income of almost €650 million represents a 3% decline from the €671 million posted a year earlier, as the firm’s operating profit fell by almost 4%, year-on-year, to €919 million.
Across the group, gross written premium increased by nearly 20% to €17.3 billion, as net premium earned rose by 19.6% to €13.8 billion.
But while premiums grew at Hannover Re during H1 2022, the company’s underwriting performance suffered as a result of elevated loss activity in the period.
Within P&C reinsurance, net expenditure for larges losses in H1 2022 hit €850 million, compared with €326 million in H1 2021, and is some €239 million above the expected level of €611 million for the first half of the year. Hannover Re attributes this to its reserve of €316 million for possible losses related to the ongoing war in Ukraine.
The floods in Australia drove the largest individual loss for Hannover Re in the first six months of 2022, at a cost of €186 million, followed by the impacts of winter storm Ylenia in Central Europe, at a cost of €126 million.
Additionally, notes Hannover Re, it booked further IBNR reserves of €130 million for the 2021 drought in Brazil due to late claims reporting.
Owing to the higher loss experience, the underwriting result in P&C reinsurance, including interest on funds withheld and contract deposits, fell to €96 million in H1 2022 versus €317 million in H1 2021. This is reflected in a combined ratio of 99% for this year, which is weaker than the 96% reported a year earlier and also above the maximum level of 96% the company envisaged for the 2021-2023 strategy cycle.
Despite the dip in underwriting performance, the reinsurer notes that demand for coverage remained high, and as such, it was able to significantly grow its premium income and secure improved prices and conditions at this year’s renewals.
Within P&C reinsurance, gross written premium rose by almost 26% to €12.9 billion in H1 2022, as net premium earned grew by more than 25% to €9.8 billion.
All in all, the P&C business produced an operating profit of €586 million in H1 2022 against €778 million in H1 2021, as the segment’s net income fell, year-on-year, from €592 million to €399 million.
Hannover Re also saw an opportunity to grow its life and health (L&H) reinsurance book in H1 2022, notably for solutions to protect against longevity risks and in financial solutions. This part of the business has reported gross written premium growth of 5.3% to €4.4 billion, while net premium earned increased by 7.6% to €3.9 billion.
The L&H reinsurance unit was impacted by further claims related to the pandemic in H1 2022, which amounted to €194 million, although this is down on the €263 million reported a year earlier.
The reinsurer also explains that it posted positive income of €88 million from its extreme mortality cover in the period, layers of which it has placed on the capital market on a regular basis for almost a decade.
The L&H reinsurance operating result improved by an impressive 86% to €334 million, as net income increased from €105 million in H1 2021 to €280 million in H1 2022.
Jean-Jacques Henchoz, Chief Executive Officer (CEO) of Hannover Re, commented: “Our consistently strong and profitable growth shows how highly sought-after Hannover Re’s reinsurance protection is among our clients during difficult times. We delivered a satisfactory result in the first half-year, not least thanks to our superlative risk and capital management. We were able to do this despite setting aside reserves for impacts of the war launched against Ukraine in contravention of international law, despite considerable large loss expenditures and despite further pandemic-related payments.”
On the asset side of the balance sheet, Hannover Re has reported that the portfolio of assets under own management remained flat at €56.2 billion. At the same time, net investment income increased by 23% to €853 million, with an annualised return of 3%, which is above the full-year target of at least 2.3%. Overall, investment income increased by more than 13% to €980 million.
Looking ahead, Hannover Re says that it expects gross premium across the group to increased by more than 7.5% for 2022, with a return on investment of over 2.5%, and group net income of €1.4 billion to €1.5 billion. Although, this is based on large losses not significantly going over the budgeted level of €1.4 billion, and also assumes that losses related to the pandemic do not have a major unexpected influence on the performance of its L&H reinsurance business.
“Our success is grounded on our considerable underwriting discipline, the cost efficiency of our business model and our agile capital management. On this basis we are ideally placed to tackle the numerous challenges in our market. Against this backdrop, and thanks to our strong customer relationships, I am confident that we will achieve our ambitious goals for 2022. With the result for the first six months we have laid vital groundwork to this end,” said Henchoz.