Hannover Re expects €800m profit in 2017 despite nat cat losses: CFO
Hannover Re expects a net profit of €800 million for the full year of 2017 after the reinsurer sold off its listed equity portfolio, despite nat cat losses exceeding its large loss budget.
Hannover Re issued a profit warning in September after nat cat events such as hurricane Irma and Harvey resulted in losses that were expected to exceed its large loss budget for the period, resulting in the company missing its targeted €1 billion group net income in 2017.
The reinsurer incurred €765 million in large losses in the third quarter driven by hurricane Irma, Harvey and Maria, as well as two earthquakes in Mexico, chief financial officer Roland Vogel said during the third quarter results media call.
As a consequence, Hannover Re has exceeded the reserves it had budgeted for the first nine months by around €270 million, Vogel noted.
For the full year of 2017, Hannover Re had budgeted a large loss burden of €825 million.
But the fourth quarter has already seen additional large losses from hurricane Nate, wildfires in California and storm Xavier. For the fourth quarter, Hannover Re had budgeted €200 million for large losses, which have only partially been used so far.
“I would estimate that half of the fourth quarter budget has not been used yet,” Vogel said. This makes Vogel confident that Hannover Re can post an €800 million net profit for 2017.
The achievement of this profit result will be helped by the sale of all of Hannover Re’s listed equity portfolio in the third quarter. The sale of the equity portfolio lifted the net investment results by 50 percent year on year to €603.1 million in the third quarter.
The company made a €220 million profit through the asset sales, Vogel noted.
The asset disposal helped Hannover Re to avoid posting a loss in the third quarter. Instaed, group net income was €13.9 million in the third quarter of 2017 compared to €303.4 million in the same period a year ago.
The sale of the equity portfolio will also allow Hannover Re to take advantage of rising rates on the back of the nat cat events in North America, Vogel suggested. Rates are expected to rise particularly in the impacted regions. Hannover Re is preparing to increase its risk appetite in the affected regions, Vogel said, but not only there.
“We see positive effects globally in many areas where rates were inadequate in the past,” Vogel said. He pointed particularly to specialty lines such as aviation and transportation.
If renewals show the expected rate rises, Hannover Re is likely to increase its risk appetite, Vogel suggested.
So far, Hannover Re has left its large loss budget unchanged for 2018. Depending on the developments at renewals, the reinsurer is prepared to increase the large loss budget for 2018, Vogel noted.
“We will take advantage of growth opportunities even if this means that the [2018] large loss budget will need to be increased as a result,” Vogel said.
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