Large and frequency losses across its industrial property insurance portfolio are set to drive Hannover Re’s parent Talanx Group to a negative third-quarter in that division, the company said yesterday.
Talanx has pre-warned of these losses ahead of its November results statement, in order to alert the market to the negative quarter for its Industrial Lines Division and the impact that will have on its overall profits.
Talanx said it estimates a large-loss burden in the Industrial Lines Division for the first nine months of 2018 of more than EUR 260 million.
As a result, the firm said it has exceeded its large loss budget for the entire year in Industrial Lines, thanks in particular to several large losses and an accumulation of frequency losses in industrial property insurance.
In the third quarter alone Talanx expects that its Industrial Lines Division will report a quarterly loss before taxes of over EUR 100 million.
Despite the heavy loss experience so far in 2018, Talanx remains confident that it will resolve underwriting profitability issues in this affected industrial division by 2019, saying that it expects a “balanced underwriting result in 2019” and a “positive underwriting result in the division from 2020.”
Twenty percent of the industrial lines portfolio has been operating a combined ratio of more than 100%, which Talanx says it is working to rectify.
All of the firm’s other divisions, including its Retail Germany, Retail International and Reinsurance (so Hannover Re), divisions are said to be developing in line with expectations.
Talanx now says that it is assuming a Group net income of around EUR 700 million for full-year 2018, with return on equity of around 8 percent so hitting its minimum return on equity target. That forecast is based on large losses being within budget for Q4.
For 2019, hoping that its underwriting actions pull this Industrial property business into line, Talanx says it is expecting Group net income of close to EUR 900 million, which would represent a higher profit than originally planned for 2018.
Analysts at J.P. Morgan said that the news from Talanx shows that the turnaround in its industrial property underwriting business has not been as swift or successful as hoped for.
Adding that the profit warning is likely negative for the stock as, “It shows that the planned turnaround in Industrial Lines is more challenging and that the concentration of the group’s exposure to German fire losses is higher than we had originally thought.”
However, with Talanx in the process of re-pricing the industrial underwriting portfolio, JPM’s analysts believe that once the lag between underwriting actions and improved profits has passed the firm should be on track to improve the profitability of this segment of its business by 2020.
