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DGAP-News: Hannover Rück SE / Key word(s): 9 Month figures
Hannover Re confirms profit guidance for 2021 despite sharp rise in major loss expenditure in the third quarter
Hannover, 4 November 2021: Hannover Re increased its Group net income in the first nine months of the financial year by 28% and considers itself still in position to achieve the profit target set for the current financial year despite considerable major loss expenditure incurred in the third quarter.
"In recent months insurers and reinsurers were faced with unusually heavy losses from hurricanes, flooding and other catastrophic events," said Jean-Jacques Henchoz, Chief Executive Officer of Hannover Re. "Our solid nine-month result again demonstrates Hannover Re's resilience in a volatile environment."
Group net income rises after nine months to EUR 856 million
While the underlying business in property & casualty and life & health reinsurance showed a stable development in line with expectations, the investments delivered a substantially better profit contribution than anticipated.
The operating profit (EBIT) on the Group level increased by 42% to EUR 1,281 million (EUR 903 million). Group net income improved by 28% in the first nine months of the year to EUR 856 million (EUR 668 million). Earnings per share thus amounted to EUR 7.10 (EUR 5.54).
Property and casualty reinsurance records sharp rise in large loss expenditure
The gross written premium in property and casualty reinsurance climbed by 14% to EUR 15.3 billion (EUR 13.3 billion). The increase would have been 18% adjusted for exchange rate effects. Net premium earned rose by 15% to EUR 12.1 billion (EUR 10.5 billion). At constant exchange rates the increase would have reached 18%.
Due to significant natural catastrophes in the third quarter, net major loss expenditure increased to EUR 1,070 million (previous year: EUR 1,149 million, thereof EUR 700 million relating to Covid-19) as at the end of September and was thus substantially higher than the budgeted expectation of EUR 849 million for the first nine months.
No further reserves had to be established for the Covid-19 pandemic in property and casualty reinsurance.
The largest individual loss for net account in the third quarter was Hurricane Ida, which caused severe storm and flood damage in multiple US states when it made landfall at the end of August as a Category 4 hurricane. The net payments made by Hannover Re to its customers for this event alone added up to EUR 306 million. In addition, Germany and other European countries suffered devastating flood and hail damage in the months of June and July. Hannover Re provided its clients with reinsurance coverage for the low-pressure system Bernd in July in a net strain of EUR 214 million. Further large losses in the third quarter included the civil unrest in South Africa at a cost of EUR 94 million and flooding in China in an amount of EUR 35 million.
The underwriting result including interest on funds withheld and contract deposits for property and casualty reinsurance totalled EUR 253 million (EUR -146 million). The combined ratio reached 97.9% (101.4%). It was thus above the expected level of no more than 96% for the full year.
The operating profit (EBIT) in property and casualty reinsurance surged by 80% to EUR 1,061 million (EUR 589 million). Net income improved by 77% to EUR 739 million (EUR 418 million).
Life and health reinsurance reports losses of EUR 404 million from the pandemic
Losses relating to Covid-19 in life and health reinsurance totalled EUR 404 million (EUR 160 million) in the first nine months. Of this, EUR 140 million was attributable to the third quarter. It remains Hannover Re's expectation that these expenditures will diminish progressively as vaccination programmes make further progress.
The pandemic-related strains were opposed by a positive special effect from the longevity portfolio of EUR 99 million in the third quarter and by a positive one-time income in the first quarter from a restructuring measure in US mortality business amounting to EUR 129 million.
The operating result (EBIT) in life and health reinsurance fell by 30% to EUR 220 million (EUR 315 million) owing to the pandemic losses. The contribution to Group net income contracted by 50% to EUR 150 million (EUR 297 million).
Income from assets under own management grew by 12% to EUR 1,142 million (EUR 1,021 million). The resulting annualised return reached 2.9% and thus came in comfortably above the original full-year target of around 2.4%. Total investment income improved by 15% to EUR 1,357 million (EUR 1,185 million).
Return on equity still above minimum target at 10.2%
The capital adequacy ratio under Solvency II, which measures Hannover Re's risk-carrying capacity, amounted to 239 % as at the end of September and thus remained clearly above the limit of 180% and the internal threshold of 200%.
"The third quarter has shown us once again how quickly an unexpectedly benign loss experience during the year can completely turn around," said Jean-Jacques Henchoz. "Despite this, we believe we are in a position to achieve our guidance for 2021."
As already communicated, Hannover Re intends to place even greater emphasis on the continuity of its dividend payments going forward. From the current financial year onwards the ordinary dividend will at least be on the level of the previous year. The ordinary dividend will be supplemented by a special dividend provided the capitalisation exceeds the capital required for future growth and the profit target is achieved.
Achievement of the earnings target is dependent on major loss expenditure not significantly exceeding the budgeted level for the fourth quarter of EUR 251 million and assumes that there are no unforeseen distortions on capital markets.
Outlook for 2022: Sharp rise in earnings reflects profitable growth and cycle management
"The profitable growth and our successful cycle management in recent years will lead to a sharp rise in earnings in the 2022 financial year," said Jean-Jacques Henchoz. "Not only that, in life and health reinsurance we anticipate that the strains from the Covid-19 pandemic will diminish appreciably as vaccination programmes make increasing progress and the underlying healthy profitability of the portfolio will once again be reflected in the result."
The expectations for 2022 additionally reflect an increase in the net major loss budget to EUR 1.3 billion (EUR 1.1 billion) that is commensurate with the growth in the underlying business. As usual, all forward-looking statements regarding future targets are based on the assumption that there are no unforeseen distortions on capital markets and assume that large loss expenditure remains within the expected bounds and the Covid-19 pandemic does not have any significant effect on the result in life and health reinsurance.
Please note the disclaimer:
Key figures of the Hannover Re Group (IFRS basis)
04.11.2021 Dissemination of a Corporate News, transmitted by DGAP - a service of EQS Group AG.
Hannover Rück SE
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