Global reinsurance giant Hannover Re has reported a 39.3% decline in net income for the first six months of the year to €402.4 million, as the firm set aside additional reserves of €380 million for estimated losses associated with the ongoing COVID-19 pandemic.
The increase in reserves means that the reinsurer has now reserved a total of €600 million related to property and casualty (P&C) reinsurance in H1 2020 for losses related to the pandemic.
Overall, Hannover Re has reported net major loss expenditure of €737 million in H1 2020, which is significantly higher than its €414 million budget for the period. The firm notes that the bulk of its COVID-19 losses are yet to be reported but are nevertheless anticipated.
Hannover Re says that both the duration and intensity of the pandemic remains unclear, and that its €600 million of reserves are intended for potential additional loss payments in the areas of business interruption, trade credit, or event cancellation.
Jean-Jacques Henchoz, Chief Executive Officer (CEO) of Hannover Re, commented: “We have come through the crisis relatively well so far. This enables us to make appropriate provision for the anticipated Covid-19 losses and take account of the still considerable uncertainty surrounding the scale of the pandemic.
“Our business model is geared to managing such extreme events. We offer our clients and business partners our unqualified support.”
Alongside the COVID-19 hit, Hannover Re also expects losses of €31.1 million for tornadoes in the U.S. and €26.3 million for bushfires in Australia.
Within the company’s P&C reinsurance segment, gross written premium (GWP) expanded by 16.9% to €9.2 billion as at June 30th, 2020, while net earned premium jumped by 15.2% to €6.9 billion. The firm highlights increased demand for reinsurance protection at the recent renewals, enabling it to substantially grow its P&C reinsurance premium volume.
The firm’s P&C reinsurance unit fell to an underwriting loss of €160.7 million in H1 2020 with a combined ratio of 102.3%. This compares with an underwriting gain of €195.9 million in H1 2019 and a combined ratio of 96.7%.
In total, the operating result in the P&C reinsurance segment contracted by 55.8% to €290 million, with the contribution to group net income falling to €244.7 million.
As well as its impact on the P&C side of the business, the ongoing pandemic also dented the performance of Hannover Re’s Life and Health (L&H) reinsurance business. As at the end of June 2020, global losses associated with the COVID-19 pandemic in this business totalled €60 million, most of which came from the US.
As a result of the impact of the pandemic, the operating result within L&H reinsurance declined year-on-year to €214.2 million, versus €286 million a year earlier. The contribution to overall group net income also fell, from €257.7 million in H1 2019 to €188.4 million in H1 2020.
GWP in L&H reinsurance increased by 3.3% for Hannover Re in H1 2020 to €4 billion, as net earned premiums increased by 3.5% to €3.5 billion.
“In life and health reinsurance we saw a sharply increased need for protection among our clients, especially for tailor-made coverage concepts in the financial solutions segment in Asia,” Henchoz.
Overall, the global reinsurance giant has reported GWP expansion of 12.4% to €13.1 billion in H1 2020, while net earned premiums reached €10.4 billion, up 10.9% on the prior year. The firm saw opportunities to grow both its P&C and L&H reinsurance books at the recent renewals, noting significant improvement in prices and conditions.
Overall, Hannover Re’s operating result fell by 46.6% to €503.5 million in H1 2020, while earnings per share amounted to €3.34, against €5.49 a year earlier.
Looking forward, Henchoz said: “There are still too many uncertainties associated with providing profit guidance for the full year. The development of the pandemic and its implications for economic growth as well as the measures taken by various governments will play a defining role in shaping our loss experience.
“In view of their global nature and the immense costs that can be incurred worldwide, the coverage of systemic risks is dependent now more than ever on partnership-based approaches. We stand ready to contribute our global expertise in supporting the development of innovative coverage solutions for large risks.”
