Hannover Re ends slow-grow, hard-market year with new reserves, margin gain
Global reinsurer Hannover Re gave a light boost to P&C reinsurance margins for FY2023, despite adding yet another dose to its mass of prudency reserves, uneven top-line growth and the year-long drag from higher retrocession.
“Despite the continued challenging environment, we have further improved the profitability of our business,” CEO Jean-Jacques Henchoz said, citing the topping of group earnings targets and the subsequent increase of the dividend to shareholders.
The group’s P&C reinsurance combined ratio came down half a point For FY2023 to 94%, albeit without mention for how the shape and duration of the mass reserving affected the discounted IFRS17 measure.
Better readings are on the way in 2024 as more and more of the 2023 market gains are earned in. Expect a combined ratio below 89% for the new full year.
IFRS17's new top line measure 'reinsurance revenues', an earned-in tally already inclusive of margin estimates, rose 3.4% year on year, or 6.5% at constant FX rates, following a year of hot and cool approaches to the varying renewals deadlines, chiefly cool in Q1 and hot in Q2.
For 2024, Hannover Re now believes that P&C should lead the way to group reinsurance revenue growth of more than 5%. P&C reinsurance should be “disproportionately stronger” than L&H on the way to the target, management said.
Large-loss claims tamed for FY2023 as the market's shift to higher retentions dovetailed with 2023’s high frequency of more moderate-sized catastrophe losses.
Payouts on large loss in 2023 came to €1.6 billion, “a figure within the budgeted expectation” of €1.725 billion, management said. July storms in Italy accounted for €313 million; the Syria-Turkey earthquake took €270 million and Hurricane Otis in Mexico took €142 million.
The increase in prudency, the total sum of which has yet to be confirmed in an outside audit by WTW, was funded in part by new tax assets from the global move, and notably the Bermuda move, to a global minimum corporate tax.
“This special tax effect provided additional room to further increase our resilience,” CFO Clemens Jungsthöfel said. “We used this opportunity to additionally strengthen our loss reserves in property and casualty reinsurance, thereby significantly increasing the confidence level of our reserves.”
Those new reserves, however, put paid to underwriting profits in the fourth quarter, pushing the combined ratio to 101.1%.
The reinsurance service result, IFRS17's underwriting profit measure that adjusts the margin-inclusive revenue figure by actual experience and other factors, rose 5.9% to €849 million, pointing to the more sizeable improvement in the margin on the active book.
Those improved margins from the current hardened market were visible in the 30% increase in the estimated margin of new business drawn into the Hannover Re P&C books, IFRS17's so-called ‘new business contractual service margin', at €2.37 billion for the year.
Retrocession was said to be the drag vis-a-vis the initially projected business margin which management said stemmed from “comparatively low retrocession recovery.”
Following a 34% increase in life segment EBIT, a 65% increase in the investment results and the mass decline in tax payments on the tax asset, Hannover ended with a FY2023 group net profit of €1.8 billion, ahead of a target for €2.1 billion in 2024.
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