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Hannover Re’s income robust but large losses (COVID) dent underwriting result

11th March 2021 - Author: Luke Gallin

Global reinsurer Hannover Re has outperformed its Group profit guidance of more than €800 million for 2020 despite the significant impacts of the COVID-19 pandemic, which, alongside other large losses pushed the firm’s property and casualty (P&C) combined ratio into unprofitable territory.

Group net income declined from the €1.3 billion posted in 2019 but did come in above guidance at €883 million for 2020.

Gross premium increased by almost 10% year-on-year to €24.8 billion, while net premium earned jumped by 8.2% to €21.4 billion.

Overall, Hannover Re’s operating profit declined by 34.5% in 2020 to €1.2 billion compared with €1.9 billion a year earlier.

“The coronavirus has had an enormous impact on all our lives and I would like to express our sympathies to those who have endured personal suffering as a result of the virus,” said Jean-Jacques Henchoz, Chief Executive Officer (CEO) of Hannover Re.

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“We are playing our part in overcoming the consequences of this pandemic and are contributing our expertise to the development of coverage concepts for future extreme events. As one of the largest and most financially robust reinsurers, we continue to be a reliable partner at our customers’ side. In the pandemic year 2020 Hannover Re achieved a very good result, thereby again demonstrating its superb risk-carrying capacity and its broad diversification.

“We are benefiting particularly strongly from the sustained improvement in prices and conditions on our market. With a view to maximising the available business opportunities, we have decided to omit payment of a special dividend for 2020 and instead to slightly raise the ordinary dividend,” he continued.

In P&C reinsurance, Hannover Re notes the substantial impacts of the pandemic throughout the year. In fact, the impact of COVID-19 ensured that Hannover Re’s large loss bill surpassed expectations for the fourth year running.

Looking at just COVID-19, and Hannover Re paid out or reserved an amount of €950.1 million for its customers in P&C reinsurance, of which €330.9 million was attributable to reported claims and €619.2 million to IBNR claims.

“We substantially reduced the risk of additional reserving in property and casualty reinsurance by further strengthening our IBNR reserves for Covid-19-related losses at the end of the year. Provided large losses remain within our expectations, this should be reflected in sharply improved profitability in 2021,” said Henchoz.

As well as the pandemic experience, the most severe major claims for 2020 included a storm that impacted eastern parts of the U.S. at a net cost of €111 million; Hurricane Laura at a cost of €87.5 million; and the Beirut port explosion at a cost of €86.6 million.

Overall, Hannover Re’s net major loss expenditure in the year reached €1.595 billion compared with €956.1 million in 2019, which is substantially higher than the firm’s large loss budget of €975 million for 2020.

Hannover Re’s P&C reinsurance segment has reported an underwriting loss of €223.5 million for 2020 against a gain of €235.4 million in 2019. The combined ratio weakened from 98.2% in 2019 to 101.6% in 2020.

Within P&C reinsurance, gross premium volume grew by more than 13% to €16.7 billion in 2020, with the reinsurer noting that prices and conditions for reinsurance protection steadily improved in the various renewals during the year.

The pandemic also impacted the company’s Life and Health reinsurance (L&H) segment in 2020. Paid losses and reserves relating to COVID-19 reached €261.1 million, the majority of which was attributable to sickness and death benefits in the U.S.

In L&H reinsurance, the gross premium volume jumped by 2.6% year-on-year to €8 billion. At the same time, the operating result fell from €569.9 million in 2019 to €384.8 million in 2020.

During 2020, Hannover Re’s portfolio of assets under management increased by 3.3% to €49.2 billion. Income from investments under own management declined slightly in 2020 to €1.47 billion, resulting in a net return of 3%, which is above the target of around 2.7%.

Looking forward, the reinsurer warns that the course of the pandemic and the associated increased mortality remains a challenge to predict. In the U.S. especially, the company expects additional loss expenditures in L&H reinsurance from the pandemic.

“Even though the pandemic remains an element of uncertainty, I am confident that we shall achieve all our targets for the 2021 financial year and return to the very good level of profitability recorded in 2019. This will be supported by the sustained improvement in prices and conditions seen in property and casualty reinsurance,” said Henchoz.

Over the course of 2021, Hannover Re expects to expand its gross premium by around 5%. The firm projects Group net income in the range of €1.15 billion to €1.25 billion, although this is based on major loss expenditure not significantly exceeding the budgeted level of €1.1 billion.

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