Hannover Re’s Q1 Net Income Increases 20.1% to $311.8 Million

May 6, 2015

During the first quarter, Hannover Re generated net income of 279.7 million euros ($311.8 million), a 20.1 percent increase over the 233.0 million euros ($260 million) reported for the same period last year.

“The fact that we were able to boost our net income by a further 20.1 percent compared to the previous year’s quarter can be attributed in particular to the outstanding contribution from life and health reinsurance and another satisfactory underwriting result in property and casualty reinsurance. Investment income also fully lived up to our expectations,” Chief Executive Officer Ulrich Wallin stated.

Given this successful start to the year, Hannover Re said it is confident of achieving its profit guidance in the order of 875 million euros ($975.3 million) for the full 2015 financial year.

Other highlights for the first quarter include:

  • Gross written premiums of 4.4 billion euros ($4.9 billion), a 21.4 percent increase from the 3.6 billion euros ($4.0 billion) reported for the same period in 2014. At constant exchange rates gross premium would have risen by 10.3 percent.
  • Retained premium rose slightly higher from the comparable period in 2014 at 88.6 percent (88.4 percent). Net premium earned grew by 17.8 percent to 3.4 billion euros ($3.8 billion), compared with 2.9 billion euros ($3.2 billion) reported for the same period in 2014; growth would have totaled 6.9 percent when adjusted for exchange rate effects.
  • Operating profit (earnings before interest and tax, or EBIT) came in at 429.0 million euros ($478.2 million), compared with 349.6 million euros ($389.7 million) for the first quarter in 2014. The 22.7 percent increase was driven in particular by the improved result in life and health reinsurance.
  • Combined ratio was 95.7 percent, compared with 94.4 percent last year.
  • Investment income rose 15.1 percent to 415.7 million euros ($463.4 million), compared with 361.2 million euros ($402.6 million) for the same period last year.
  • Return on equity of 13.9 percent.
Property & Casualty Reinsurance

Competition in worldwide property and casualty reinsurance markets remains intense, which was demonstrated in the January 1, 2015 treaty renewals, Hannover Re said in its quarterly earnings report.

Nevertheless, total gross premium for property and casualty reinsurance beat expectations during the first quarter, rising to 2.6 billion euros ($2.9 billion), compared with 2.1 billion euros ($2.3 billion) reported for the same period last year. Growth was assisted by both the strong U.S. dollar and business opportunities with attractive, large-volume treaties, the company said. An additional factor was a nonrecurring special effect amounting to 93 million euros ($103.7 million) in facultative reinsurance business resulting from improved estimation methods for more timely booking of premiums.

At constant exchange rates the increase in gross written premium would have totaled 13.0 percent. If the special effect is eliminated, gross premium would still have risen by 8 percent adjusted for exchange rate effects. The level of retained premium decreased to 88.9 percent (91.2 percent), as a consequence of which net premium earned climbed by a less marked 4.9 percent (currency adjusted) to 1.9 billion euros ($2.1 billion), compared with 1.6 billion euros ($1.8 billion) in Q1 2014.

The operating profit (EBIT) in property and casualty reinsurance as at March 31, 2015 decreased to 255.2 million euros ($284.5 million), compared with 280.5 million euros ($312.7 million) for the corresponding period in 2014. Net income reached 171.4 million euros ($191.1 million), compared with 197.9 million euros ($220.6 million) reported for the same period in 2014.

As had been the case in the corresponding period of the previous year, major loss expenditure for Hannover Re came in below the envisaged quarterly budget. In addition to the storm “Niklas” and a winter storm in the United States, the crash of a German passenger jet in the French Alps marked another tragic event for the civil aviation industry, the company said. The total net expenditure incurred by Hannover Re from these events amounted to 62.0 million euros ($69.1 million), compared with 30.6 million euros ($34.1 million) for the same quarter in 2014.

In accordance with the company’s reserving policy, the unused portion of the major loss budget for the first quarter was for the most part allocated to the loss reserves. The underwriting result closed at 76.6 million euros ($85.4 million), compared with 87.6 million euros ($97.6 million). The combined ratio of 95.7 percent (94.4 percent in Q1 2014) was better than the target figure.

Life and Health Reinsurance

The first quarter of 2015 was an exceptionally positive one for Hannover Re in life and health reinsurance. Despite the challenges currently facing this business group, expectations were fulfilled both in terms of profitability and premium growth.

Accordingly, gross written premium increased by 17.6 percent during the first quarter to 1.8 billion euros ($2.0 billion), compared with 1.5 billion euros ($1.7 billion) reported for the same period in 2014. At constant exchange rates growth would have amounted to 6.5 percent. Reflecting a higher retention, net premium earned soared by an even more appreciable 21.0 percent to 1.5 billion euros ($1.7 billion), compared with 1.3 billion euros ($1.5 billion) for the first quarter last year. Adjusted for exchange rate effects, the increase still would have reached 9.4 percent.

Outlook for 2015

Based on constant exchange rates, the company expects to book higher gross premium and net income after tax in the order of 875 million euros ($975.3 million) for the full 2015 financial year. This is conditional on major loss expenditure not significantly exceeding the anticipated level of 690 million euros ($769.1 million) and assumes that there are no unforeseen adverse developments on capital markets.

Renewals

The continued challenging business environment in property and casualty reinsurance was further underscored by the April 1 treaty renewals, the traditional renewal date for business in Japan and on a smaller scale treaties in Korea, Australia and New Zealand as well as parts of the U.S. property catastrophe portfolio. Hannover Re said it is satisfied with the outcome of this round of renewals.

Hannover Re booked modest premium growth in its Japanese portfolio. The company successfully maintained its good market position thanks to its long-standing relationships with ceding companies. Although the pressure on rates for Japanese natural catastrophe covers increased as expected, they were still commensurate with the risks. Merely modest premium declines were recorded in personal accident insurance and in the area of per-risk property covers; in casualty business, on the other hand, further increases were obtained. Market conditions in Korea were once again difficult, prompting Hannover Re to further consolidate its portfolio here. As anticipated, U.S. property catastrophe business saw renewed rate erosion in the range of 5 percent to 10 percent, although no additional softening in conditions was observed. The premium volume in the United States rose as the company wrote more business with a number of sizeable accounts.

[Exchange rate used for this article as of May 6, 2015 was 1 euro = US$1.12].

Source: Hannover Re

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