Hannover Re’s net income rises as P&C reinsurance CoR strengthens to 88%

Global reinsurer Hannover Re has announced a 15% rise in net income to €558 million in its first quarter 2024 results, with a reinsurance underwriting result of €720 million, up 27% year-on-year.

Group-wide, Hannover Re’s operating profit rose 13% to €811 million from €720 million in Q1 2023, as the return on equity increased to 21.3%, and the contractual service margin increased by 15% to €8.9 billion.

Hannover Re attributes the increase in the service margin to all the business growth in the first quarter and the continued favourable earnings prospects.

Within its property and casualty (P&C) reinsurance business, catastrophe losses came in below budget in the quarter at €378 million, driven by the earthquake in Japan at a cost of €25 million, wildfires in Chile at a cost of €16 million, and the collision between two aircraft at a Japanese airport at a cost of €12 million.

The reinsurer notes that at the time of the quarterly closing, it was not yet possible to put a number on the loss resulting from the bridge collapse in Baltimore, but suggests that this will probably be the largest individual loss.

“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,” explains the firm.

All in all, the P&C reinsurance service result rose 61% year-on-year to €509 million in Q1 2024, as the combined ratio strengthened from 92.3% to 88%, which is below the expected level of less than 89%.

Investment income in the P&C reinsurance arm increased by a significant 41% to €421 million. The operating profit rose by 35% to €629 million, and P&C reinsurance revenue rose by 3.1% to €4.7 billion.

In its life and health (L&H) reinsurance segment, the new business CSM increased from €84 million in Q1 2023 to €97 million in Q1 2024, with Hannover Re highlighting sustained strong demand in financial solutions business and for solutions designed to protect against longevity risks.

Contract renewals and amendments in the in-force portfolio resulted in a stark increase in the contractual service margin to €6.1 billion, while the new business LC amounted to €7.9 million, up from €6.7 million in the prior year period.

L&H reinsurance revenue declined by 2.1% to €1.9 billion, as the reinsurance service result contracted as the reinsurer expected to €211 million from €253 million, and thus reached a satisfactory level for achieving the year-end target of above €850 million.

Within L&H, investment income fell from €83 million in Q1 2023 to €76 million in Q1 2024, and the segment’s operating result declined from €253 million to €181 million.

Jean-Jacques Henchoz, Chief Executive Officer of Hannover Re, commented: “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. 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.”

On the asset side of the balance sheet, investment income was substantially higher overall than the corresponding figure for the previous year, coming in at €498 million for Q1 2024, compared with €381 million in Q1 2023. The firm attributes this to strong earnings from the fixed-income portfolio, which offset the 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%.

“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.”

After a strong set of results for the opening quarter of the year, Hannover Re expects reinsurance revenue in total business to grow by more than 5% in 2024 based on constant exchange rates. The company explains that the currency-adjusted growth in reinsurance revenue will be disproportionately stronger in P&C than in L&H.

For the full year 2024, Hannover Re expects group net income to reach at least €2.1 billion, although this assumes that there are no unforeseen distortions on capital markets, and that large loss expenditure does not exceed the budgeted expectation of €1.825 billion.

The reinsurer has also commented on the April reinsurance renewals today, stating that business in the Asia-Pacific region and North America as well as in some specialty lines traditionally comes up for renewal at this date. Hannover Re reports that it obtained slightly improved risk-adjusted prices and conditions here overall. The renewed volume grew by 7.1%, and 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. 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,” said Henchoz.

Given the improved market environment, Hannover Re expects a combined ratio under 89% for P&C reinsurance in 2024, and anticipates L&H reinsurance generating a service result of above €850 million in the current financial year.

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