German reinsurer Hannover Re has reported group net income growth of 1.7% to €871 million for the 9 months of 2022, despite the firm’s net large losses coming in above budget for the period at €1.484 billion.
Alongside slight growth in net income, Hannover Re’s 9M 2022 operating profit rose by 3.7%, year-on-year, to €1.3 billion, while return on equity remained above minimum target at 11.5%.
Across the group, gross written premium (GWP) spiked 21% to €26.3 billion compared with €21.6 billion a year earlier, as net premiums earned rose 22% to €21.6 billion, against €17.6 billion in the prior year period.
During the 9M period, the reinsurer’s property and casualty (P&C) reinsurance division experienced above-average large loss expenditure as a result of numerous natural catastrophe events.
All in all, the firm recorded net large loss costs of €1.484 billion in 9M 2022, which is up on last year’s €1.07 billion total, and also higher than the expected level of €1.079 billion budgeted for the period.
Hurricane Ian was the largest individual loss for Hannover Re in the first nine months of the year at a cost of €276 million, followed by the severe floods in Australia at a cost of €211 million, and winter storm Ylenia in Central Europe at a cost of €115 million.
Additionally, Hannover Re booked an IBNR reserve of €331 million in 9M 2022 for possible losses from the ongoing war in Ukraine. Further, additional reserves were also made in 9M 2022 for sizeable losses from the past year based on corresponding loss advices, which includes an amount of €130 million for the drought in Brazil.
In light of the high catastrophe load so far in 2022, Hannover Re’s P&C combined ratio stood at 99.2%, which is higher than last year’s 97.9% and above the medium-term expectation of no more than 96%. The P&C reinsurance underwriting result, including interest on funds withheld and contract deposits, fell by 52% year-on-year to €121 million.
The P&C reinsurance segment also saw its operating profit fall by 16.4% to €887 million, while net income declined by 26% to €545 million.
Within its Life and Health (L&H) reinsurance business, Hannover Re notes that losses related to the COVID-19 pandemic have fallen sharply, totalling €227.8 million in 9M 2022, compared with €404 million in the prior year period.
L&H reinsurance GWP increased by 6.6% to €6.8 billion, as net premium earned jumped by 8.4% to €6 billion.
The operating result in L&H reinsurance increased from €220 million in 9M 2021 to €441 million for 9M 2022. At the same time, net income improved even more appreciably to €369 million.
On the asset side of the balance sheet, Hannover Re has today reported that income from assets under own management improved by 7.1% to €1.223 billion, with the resulting annualised return on investment reaching 2.9%, outperforming the full-year target of more than 2.5%.
Jean-Jacques Henchoz, Chief Executive Officer (CEO) of Hannover Re, commented: “Even before the extensive devastation caused by Hurricane ‘Ian’, 2022 was a year of above-average large loss expenditure. What is more, high inflation rates are only adding to the costs of rebuilding. Our full-year earnings guidance nevertheless remains achievable. Among other things, this is possible thanks to healthy profit contributions from the investments as well as life and health reinsurance and it shows how important the interplay of diversification and risk management is.”
Chief Financial Officer (CFO), Clemens Jungsthöfel, said: “Our good and stable earnings performance in an environment shaped by considerable natural catastrophe losses as well as our continued very robust capital adequacy ratio underscore Hannover Re’s risk- carrying capacity. This establishes the foundation for our positioning as a particularly reliable and financially sound reinsurer for our clients and shareholders.”
Looking forward, Hannover Re remains confident in achieving its targets for 2022, despite the considerable major loss expenditure experienced so far this year.
The firm still expects premiums to grow by than 7.5% across the group, with a return on investment in excess of 2.5%. And, following the “extraordinary burden of large losses” in 9M 2022, group net income is expected to be at the lower end of the €1.4 billion to €1.5 billion range.
The reinsurer notes that the expected “significant overshoot of the large loss budget” will be offset in the current financial year by investment income from inflation-linked bonds that is higher than the expected level, and a solid underlying result in L&H reinsurance.
“Despite all the challenges facing insurers and reinsurers, significant price increases across the various lines of business are absolutely essential. Only in this way can we respond to the changed risk landscape. Over the coming months it is more important than ever to safeguard the profitability of our business. We are well positioned to do this thanks to our vast expertise and discipline in underwriting,” said Henchoz.