Six-month results keep Hannover Re on track to achieve 2014 target profits

Only slight major loss expenditure in Q2 2014 – also had been the case in the first quarter – has contributed to Hannover Re Group achieving what it characterizes as very satisfying financial results for the first half of the year, results that are helping the reinsurer remain on track for 2014 target profits.

“Hannover Re is very satisfied with the course of business in the first half of 2014 and well on track to achieve its demanding profit target of around 850 million euros for the full year,” notes a statement issued Wednesday by Hannover Re.

“Based on constant exchange rates, the company continues to expect stable to slightly higher gross premium and net income after tax in the order of 850 million euros for the full 2014 financial year. This is conditional on major loss expenditure not significantly exceeding the anticipated level of 670 million euros and assumes that there are no unforeseen adverse developments on capital markets.”

With regard to major loss expenditure for Q2 2014, “the largest single loss was due to a storm front that swept across the west of Germany in early June, causing thunderstorms, strong winds and hail,” Hannover Re reports. The resulting net loss for the reinsurer was 33.3 million euros, contributing to a net burden of major losses for the first half-year of 2014 of 104.7 million euros – down from 259.5 million euros in the first half of 2013 – and well below the company’s expected level of 276 million euros.

“As in past years, the unused part of the budget was allocated to the reserves, thereby creating an additional buffer for any major losses that may occur in the second half of the year,” the statement notes.

Hannover Re adds that its underwriting result was again pleasing at 158.3 million euros compared to 183.6 million euros. As well, the combined ratio of 95.0% (compared to 94.4%) was better than the envisaged target level.

Group net income at June 30, 2014 improved by 4.9% to reach 444.4 million euros, up from 423.5 million euros in the same period in 2013. Comparing operating profit for the first half of 2013 and the first half of 2014, it fell slightly from 693.0 million euros to 683.7 million euros, in part due to reduced gains on currency translation, the statement adds.

With regard to non-life reinsurance as of June 30 operating profit was 521.0 euros – compared to 549.1 million euros in the first half of 2013 – and, thus, in line with expectations, Hannover Re adds.

“Once again our non-life reinsurance business delivered a pleasing result, showing that with our proven cycle management, we are optimally placed to face up to the soft market conditions,” Ulrich Wallin, chief executive officer of Hannover Re notes.

Other Hannover Re results for the first half of 2014 compared to the first half of 2013 include the following:

• gross written premium contracted by 2.2% to 7.1 billion euros compared to 7.2 billion euros (at constant exchange rates, growth would have come in at 0.4%);
• retained premium retreated to 87.7% from 90.0%;
• total gross premium for non-life reinsurance contracted by 0.5% to 4.1 billion euros from 4.1 billion euros;
•  net premium earned fell by 1.0% to 3.4 billion euros from 3.4 billion euros;
• gross premium for life and health reinsurance contracted by 4.6% to 3.0 billion euros from 3.1 billion euros, attributable above all to the discontinuation of certain large-volume treaties in U.S. health business;
• investment income from assets under own management grew 6.2% to 532.6 million euros from 501.4 million euros; and
• net investment income, including interest on funds withheld and contract deposits, was 707.5 million euros compared to 689.0 million euros.

Looking forward, “in view of the soft market conditions, Hannover Re is concentrating solely on preserving the profitability and quality of its portfolio in non-life reinsurance. The premium volume for 2014 should remain broadly stable after adjustment for exchange rate effects,” the statement notes.

Hannover Re points out that the continued challenging state of the general business environment in non-life reinsurance was further demonstrated by the treaty renewals at June 1, and July 1.

“In U.S. property, business rate declines of between 5% and 10% were the norm under programs that had been spared losses; on the other hand, price increases of up to 30% were obtained for loss-impacted treaties in some areas,” the reinsurer reports.

“Prices in U.S. property catastrophe business softened appreciably, albeit less sharply than in the renewals of 1 January 2014. Competition in U.S. casualty business was also fiercer. All in all, the premium volume for North American business contracted slightly.”

That said, Hannover Re is satisfied with the outcome of the renewals in Latin America, with growth remaining strong despite modest rate declines being recorded in Central and South America.