Hannover Re sees P&C reinsurance CoR strengthen as underwriting result improves

Large reinsurer Hannover Re has reported a 21% rise in Group net income to €1.2 billion for the first half of 2024, with an 8.8% increase in property and casualty (P&C) reinsurance revenue as large loss costs came within budget at €566 million.

Germany’s Hannover Re has posted a strong set of H1’24 results today, with group-wide reinsurance revenue expansion of 5.2% to €12.9 billion, compared with €12.3 billion a year earlier.

The reinsurance service result increased by a significant 31% to €1.4 billion from €1.1 billion, as the reinsurance finance result adjusted for exchange rate effects, which is structurally negative, moved to -€500 million from -€342 million.

Group-wide, operating profit reached €1.7 billion in H1’24, up by 23% from last year’s €1.4 billion. The annualised return on equity reached 22.3%, so up the previous year’s 21%.

Within the firm’s P&C reinsurance business, gross revenue rose by almost 9% year-on-year to €9.1 billion, as expenditure for large losses amounted to around €566 million in the first half-year, a figure within the allocated and booked budget of €801 million.

Flooding in southern Germany was the largest net individual loss for Hannover Re in H1’24 at a cost of €120 million, while civil unrest in the French overseas territory of New Caledonia resulted in losses of €82 million, flooding in Dubai and other parts of the United Arab Emirates cost the firm €82 million, and floods in Brazil drove losses of €47 million.

The reinsurer adds that losses anticipated in connection with the bridge collapse in Baltimore are still comfortably covered by the remaining large loss budget.

The P&C reinsurance service result increased by 61% year-on-year to €963 million, which reflects the healthy profitability of underwriting activity. Hannover Re’s P&C reinsurance combined ratio strengthened from 91.7% to 87.8%, which is below the target range of less than 89%.

The investment result in P&C reinsurance rose by 28% to €797 million, and the segment’s operating profit was bolstered by 40% to €1.2 billion in H1’24.

At the April reinsurance renewals, Hannover Re says that it achieved further improved risk-adjusted prices and conditions, with the new business CSM (net) increasing by 1.9% to €1.9 billion.

At the mid-year renewals, business in the Asia Pacific region and North America as well as in some speciality lines is traditionally renewed, and the reinsurer reports modest improvements in risk-adjusted prices and conditions. In fact, the renewed volume grew by 11.5%, with an inflation and risk-adjusted price increase for the renewed business of 1.3%.

Turning to life and health (L&H) reinsurance, and the reinsurer has reported a result in line with expectations, driven by sustained demand for financial solutions.

The net new business CSM amounted to €185 million, up from €152 million a year earlier, as contract renewals and amendments in the in-force portfolio resulted in a sharp increase in the net contractual service margin to €6.4 billion.

L&H reinsurance revenue, on a gross basis, declined by 2.3% year-on-year to €3.8 billion, as the reinsurance service result fell from €481 million in H1’23 to €448 million in H1’24. The segment’s investment result totalled €211 million, down slightly on last year’s €225 million. The L&H reinsurance operating result declined by 4.4% to €501 million.

“We have a successful first six months behind us, with significant growth in property and casualty reinsurance and satisfactory Group net income. At the same time, we saw a continued trend towards increasing frequency losses and losses from secondary perils such as flooding. Thanks to our selective underwriting approach and our retrocession strategy, we feel well prepared for the upcoming second half of the year – which tends to be more loss-intensive,” said Jean-Jacques Henchoz, Chief Executive Officer of Hannover Re.

On the asset side of the balance sheet, Hannover Re has reported that the investment portfolio amounted to €62 billion at the end of June, up from €60 billion at the end of December 2023. For H1’24, the investment result increased to €1 billion from €851 million, principally as a result of increased earnings from the fixed-income portfolio.

Looking ahead, Hannover Re expects to grow the reinsurance revenue in total business by more than 5% based on constant exchange rates, and expects group net income to reach at least €2.1 billion for the full year 2024, assuming no unforeseen distortions on capital markets and that large loss expenditure remains within the expectation of €1.825 billion.

The firm expects a combined ratio of less than 89% in P&C reinsurance for 2024 in view of the improved market climate. And in L&H reinsurance, the reinsurance service result should reach more than €850 million in the current financial year.

“The challenges that lie ahead for the reinsurance industry are many and varied. We shall overcome them in the future, as we have in the past, by relying on our proven strengths: our partnership-based approach, our business model geared to efficiency and our dedicated employees.

“This focus puts us in an optimistic mood for 2024 and also safeguards Hannover Re’s success over the long term,” said Henchoz.

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