Reinsurance News

Hannover Re’s underwriting performance improves as net income climbs in Q1 2023

11th May 2023 - Author: Luke Gallin

Global reinsurer Hannover Re has reported reinsurance revenue of EUR 6.6 billion for the first quarter of 2023, as the reinsurance service result increased 35% year-on-year to EUR 568 million, despite large losses from catastrophes amounting to EUR 334 million.

hannover-re-logoAll in all, Hannover Re has reported a rise in Group net income of 13% to EUR 484 million in Q1 2023, as operating increased by 21% to EUR 720 million.

Group-wide, the reinsurance service result, which reflects the profitability of underwriting activity including business ceded, moved from EUR 568 million to EUR 421 million, while the the reinsurance finance result amounted to EUR – 167 million compared with EUR -122 million in Q1 2022.

“With the result for the first three months we have achieved more than a quarter of the full-year guidance of at least EUR 1.7 billion and are thus very much on course. At the same time, we have further strengthened our resilience. In the face of the current challenges we are thereby remaining a reliable partner for our clients,” said Jean-Jacques Henchoz, Chief Executive Officer (CEO) of Hannover Re.

Initial application of the new financial reporting standards led to a number of changes in our key performance indicators that reflect our business model even better. Hannover Re’s successful business development and extremely robust capital strength remain unaffected,” added Chief Financial Officer (CFO) Clemens Jungsthöfel.

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In the firm’s property and casualty (P&C) reinsurance business, expenditures from large losses in Q1 2023 came to EUR 334 million, which is within the large loss budget of EUR 356 million estimated for the first quarter. The largest individual losses were the earthquake in Turkey with net expenditure of EUR 201 million, as well as an intense cyclone and major flooding that impacted New Zealand at a cost of EUR 52 million and EUR 47 million, respectively.

Within P&C reinsurance, the firm reports that reinsurance revenue was broadly unchanged at EUR 4.6 billion, driven by a quality-focused underwriting approach in recent renewals that contributed to a substantially higher new business value.

The P&C reinsurance service result improved by 67% to EUR 315 million, as the segment’s combined ratio improved to 92.3% from 95.6% a year earlier.

However, the P&C reinsurance finance result, which includes in particular the interest accretion on technical reserves discounted in previous years, amounted to EUR -129 million.

All in all, Hannover Re reports that net income from investments in P&C reinsurance grew by 38% to EUR 298 million in Q1 2023.

In life and health (L&H) reinsurance, the result for Q1 2023 surpassed Hannover Re’s expectations, driven by sustained strong demand in the financial solutions segment and for solutions designed to protect against longevity risks, as well as by sharply lower pandemic-related losses.

L&H reinsurance revenue declined 2.6% to EUR 2 billion, while the net new business value in the first quarter fell short of the previous year’s level, amounting to EUR 77 million.

Hannover Re states that the Covid-19 pandemic has now transitioned to a milder endemic state, with pandemic-related strains of just EUR 11.5 million in Q1 2023.

The L&H reinsurance service result increased by 9% to EUR 253 million, reflecting in particular better profitability in the area of mortality covers.

The L&H reinsurance finance result before currency effects decreased to EUR -38 million, compared with EUR -29 million a year earlier.

Overall, net income from investments in L&H reinsurance, which had benefited from two sizeable special effects in the previous year, consequently contracted by 53% to EUR 83 million.

On the asset side of the balance sheet, Hannover Re’s portfolio of investments totalled EUR 57.0 billion as at the end of March, compared with EUR 55.3 billion at the end of December 2022.

Income from investments of EUR 381 million was only slightly below the level of the previous year’s quarter. The resulting annualised return on investment amounted to 2.7%, and thus beat the full-year target of at least 2.4%.

Looking forward, Hannover Re expects to grow the reinsurance revenue in total business by at least 5% in 2023, assuming constant exchange rates.

The firm anticipates a contribution of at least EUR 1.6 billion from P&C reinsurance to the operating result, with L&H reinsurance expected to contribute at least EUR 750 million.

All in all, Group net income for the full year should reach at least EUR 1.7 billion, although this assumes that large loss expenditure does not materially exceed the budgeted level of EUR 1.725 billion, and no unforeseen distortions occur on capital markets, and the Covid-19 pandemic does not have any further significant impact on the result in L&H reinsurance.

Commenting on the April renewals, Hannover Re says that, once again, it resulted in significantly better risk-adjusted prices and conditions, with volume growth of 7.1%, while the inflation-and risk-adjusted price increase for the renewed business amounted to 6%.

“In the renewal negotiations at 1 April we were able to build further on the significant improvements in prices and conditions achieved in the 1 January renewals. We have thus put in place another major cornerstone to secure Hannover Re’s long-term profitability,” said Henchoz.

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