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Hannover Re increases quarterly profit to €558m

Hannover Re increases quarterly profit to €558m
14-05-24 / Chris Smit

Hannover Re increases quarterly profit to €558m

Hannover - Hannover Re increased Group net income by 15% in the first quarter to 558 million and confirms its guidance for the full 2024 financial year.

"We can look back on a rather benign quarter as regards large losses. We had a good start into the year, putting us on track to achieve our full-year profit target," said Jean-Jacques Henchoz, Chief Executive Officer of Hannover Re. "At the same time, with the recent treaty renewals we have put in place a solid foundation for further profitable growth given the continued demand for high-quality and reliable risk protection in what is a challenging landscape."

Group net income up by 15% to 558 million

Reinsurance revenue (gross) grew by 1.6% to 6.7 billion (previous year: 6.6 billion). Growth of 3.0% would have been booked at unchanged exchange rates.

The reinsurance service result, reflecting the profitability of underwriting activity less business ceded (primarily retrocessions and insurance-linked securities), increased by 27% to 720 million (568 million). Adjusted for exchange rate effects, the reinsurance finance result – which includes in particular the interest accretion on technical reserves discounted in previous years – amounted to 261 million (167 million).

The operating profit (EBIT) climbed by 13% to 811 million (720 million). Group net income improved by 15% to 558 million (484 million). Earnings per share thus came in at 4.63 (4.02).

Return on equity reaches 21.3%; capital adequacy ratio under Solvency II remains robust

The shareholders' equity of Hannover Re amounted to 10.9 billion as at 31 March 2024 (31 December 2023: 10.1 billion). The annualised return on equity reached 21.3% (previous year: 20.8%). The book value per share stood at 89.97 (31 December 2023: 83.97).

The contractual service margin (net) rose sharply by 15% to 8.9 billion (31 December 2023: 7.7 billion). The increase reflects above all the business growth in the first quarter and the continued favourable earnings prospects. The risk adjustment for non-financial risk similarly increased accordingly by 4.9% to 3.9 billion (31 December 2023: 3.7 billion).

The capital adequacy ratio under Solvency II, which measures the risk-carrying capacity of Hannover Re, amounted to 266.8% at the end of March and was thus still clearly in excess of the long-term target of more than 200%.

Large losses in property and casualty reinsurance within the budgeted expectation

Expenditures for catastrophe losses in property and casualty reinsurance came in below expectations in the first quarter and were thus comfortably within the envisaged and reserved budget. At the same time, the main renewal season in property and casualty reinsurance as at 1 January 2024 brought further improvements in risk-adjusted prices and conditions for Hannover Re.

Reinsurance revenue (gross) in property and casualty reinsurance rose by 3.1% to 4.7 billion (4.6 billion). Growth of 5.0% would have been recorded at unchanged exchange rates.

In accordance with its usual practice, Hannover Re booked the entire large loss budget for the first quarter of 378 million and took this as a basis for calculating the quarterly result. Losses were caused by the earthquake in Japan at the turn of the year in an amount of 25 million, wildfires in Chile costing 16 million and the collision between two aircraft at a Japanese airport amounting to 12 million. At the time of the quarterly closing, it was not yet possible to put a number on what will probably be the largest individual loss resulting from the bridge collapse in Baltimore harbour. In total, however, the large loss expenditures incurred in the first quarter, including the Baltimore bridge collapse, will remain comfortably within the booked large loss budget.

The reinsurance service result increased by 61% to 509 million (315 million). The combined ratio in property and casualty reinsurance improved to 88.0% (92.3%) and was thus within the expected level of less than 89%. The reinsurance finance result (net) excluding exchange rate effects amounted to -228 million (-129 million).

Investment income in property and casualty reinsurance surged by 41% to 421 million (298 million).

The operating profit (EBIT) consequently increased by 35% to 629 million (466 million).

Result in life and health reinsurance in line with expectations

In the first quarter Hannover Re generated a result in line with expectations in life and health reinsurance. This was attributable above all to sustained strong demand in financial solutions business and for solutions designed to protect against longevity risks. Traditional reinsurance of mortality and morbidity risks also saw business develop favourably.

The new business CSM (net) amounted to 97 million (84 million). In addition, contract renewals and amendments in the in-force portfolio resulted in a significant increase in the contractual service margin (net) to 6.1 billion. The new business LC (net) amounted to 7.9 million (6.7 million).

Reinsurance revenue (gross) retreated by a modest 2.1% in the first quarter to 1.9 billion (2.0 billion). A decline of 1.7% would have been booked at unchanged exchange rates.

The reinsurance service result (net) contracted as expected to 211 million (253 million) and thus reached a satisfactory level for achieving the year-end target of more than 850 million. Adjusted for exchange rate effects, the reinsurance finance result (net) came to -33 million (-38 million).

Investment income in life and health reinsurance totalled 76 million (83 million).

The operating result (EBIT) in life and health reinsurance reached 181 million (253 million).

Investment income: Return on investment of 3.3% generated

"Our investments delivered a pleasing performance in the first three months, despite ongoing volatility associated with numerous geopolitical and economic headwinds," said Clemens Jungsthöfel, Chief Financial Officer of Hannover Re. "Furthermore, our continued prudent positioning positively impacted our investments."

The volume of investments again surpassed the previous year's level to reach 61.4 billion at the end of March (31 December 2023: 60.1 billion). The portfolio was favourably affected by a pleasingly strong operating cash flow, dividend income received from participating interests as well as by currency effects. Interest rate increases made themselves felt as an opposing factor.

Investment income was substantially higher overall than the corresponding figure for the previous year, coming in at 498 million (381 million). This was driven primarily by strong earnings from the fixed-income portfolio, which clearly offset the somewhat lower income from investments recognised at fair value through profit or loss. The return on investment reached 3.3%, beating the full-year target of at least 2.8%.

Guidance for 2024 confirmed

Hannover Re expects reinsurance revenue in total business to grow by more than 5% in 2024 based on constant exchange rates. The currency-adjusted growth in reinsurance revenue will be disproportionately stronger in property and casualty reinsurance than in life and health reinsurance.

Group net income should reach at least 2.1 billion for the full year. This assumes that there are no unforeseen distortions on capital markets and that large loss expenditure remains within the budgeted expectation of 1.825 billion. Business in the Asia-Pacific region and North America as well as in some specialty lines traditionally comes up for renewal on 1 April. Hannover Re obtained slightly improved risk-adjusted prices and conditions here overall. The renewed volume grew by 7.1%. The inflation- and risk-adjusted price increase for the renewed business amounted to 1.5%.

"The 1 April renewals provided further confirmation that the market environment has stabilised on a high level after the substantial improvements in prices and conditions recorded in prior years," said Henchoz. "We are optimistic that this level can be sustained in the coming renewals as well. It remains the case that our clients value our quality as a strong partner and our focus on our core expertise, namely reinsurance." 

In view of the improved market environment, Hannover Re anticipates a combined ratio under 89% for property and casualty reinsurance in 2024. Life and health reinsurance should generate a reinsurance service result of more than 850 million in the current financial year.

The asset portfolios should continue to show moderate growth – assuming stable exchange rates and interest rate levels. The return on investment from assets under own management should be at least 2.8%.

The ordinary dividend is expected to increase year-on-year over the 2024-2026 strategy cycle. 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.

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