Reinsurance giant Hannover Re has reported a 3.8% rise in net income for the first-half of the year, alongside premium growth of 11% to €10 billion (US$11.6bn). The firm also improved the combined ratio within its property and casualty (P&C) reinsurance segment, in spite of “fierce competition.”
The Germany domiciled reinsurer recorded H1 2018 net income of €555.3 million (US$644mn) and a return on equity of 13.2%, which is above its minimum target of 9.5% for the period.
Driving the reinsurance giant’s rise in profits in the period as well as its expanded premium base, was its property and casualty reinsurance segment, which saw a 19.2% surge in gross written premiums to €6.5 billion (US$7.5bn).
Hannover Re attributes the growth to the continued rise in demand for structured reinsurance solutions in both Europe and North America, alongside the rate increases witnessed in traditional reinsurance in response to 2017 catastrophe events.
On average, the reinsurer says it was able to “push through higher reinsurance rates”, but does stress that, in general, “rate movements in the industry failed to live up to the expectations of many market players.”
As well as a surge in premium, Hannover Re’s property and casualty reinsurance unit also saw its underwriting result improve by a huge 37.4% to €204.7 million (US$237mn), while the combined ratio improved to 95.7%.
Large losses remained moderate in the first-half of the year for Hannover Re, with losses mainly attributable to events such as winter storm Friederike, and an earthquake in Papua New Guinea. Totalling €93.3 million (US$108mn), the firm’s large loss expenditure was €258 million (US$299mn) below expectations in the first-half of the year.
But despite minimal losses and a significantly improved underwriting result, the property and casualty reinsurance segment’s net income fell by 2.1% to €434.4 million (US$503mn), as a result of higher tax charges. However, the unit’s operating profit jumped 8.6% to €688.8 million (US$798mn).
“Once again, both business groups, namely property and casualty as well as life and health reinsurance, plus a stable investment income shaped the positive result,” said Ulrich Wallin, Chief Executive Officer (CEO).
The life and health reinsurance segment beat expectations in the period, recording net income of €146.8 million (US$170mn), up 28.5% on the previous year.
Looking forward, the reinsurer expects to build on the solid results of its property and casualty reinsurance segment in the first-half of the year, stating that it expects to keep its combined ratio below 96%, making allowances for large losses.
Hannover Re has grown its book throughout 2018, taking advantage of improved, albeit less-than-expected reinsurance market pricing conditions in light of the losses experienced in the second-half of 2017.
According to Hannover Re, the June and July renewals “passed off successfully”, which it states is “even more gratifying given that market conditions continue to be intensely competitive”, which the firm says was especially evident in the Florida market, which is heavily impacted by alternative capital.
But despite the competitive market landscape, the reinsurer was able to significantly improve its position with numerous sizeable customer accounts. All in all, the reinsurer states that its premium volume booked for the portfolio up for renewal grew by 16%.
Wallin, commented: “When it came to the renewal of reinsurance treaties in Florida, some of which had suffered considerable losses in the previous year, we continued to pursue our profit-oriented underwriting policy. Our exposure to natural catastrophe risks therefore remains comfortably within our risk appetite, which is unchanged from the previous year.”
Hannover Re remains confident that it will achieve net income of more than €1 billion (US$1.2bn) for 2018, so long as large losses do not substantially exceed its budgeted level of €825 million (US$956mn).
It will be interesting to see how Hannover Re performs in the second-half of the year, after maintaining its profit guidance of above €1 billion despite the ongoing competitive nature of the reinsurance market. However, the reinsurer has grown its book throughout the year, taking advantage of rate increases at renewals, which combined with a continuation of low loss experience in H2 2018, could see the firm’s net income surpass its expectations.
