Hannover Re posts record profit; warns of softening
Hannover Re has posted a record profit in its 2013 results driven largely by its non-life reinsurance arm – but Ulrich Wallin, its CEO, has warned of challenges and a potential softening of the market.
The German reinsurer made a net-profit of €895.5 million in 2013, a 5.4 percent increase on the €849.6 million it made in 2012 and comfortably above its original profit target. Its return on equity dropped slightly to 15 percent compared with 15.4 percent the year before.
Its combined ratio improved to 94.9 percent versus 95.8 percent in 2012. Its major losses for the year cost €577.6 million, well below its loss budget. The most expensive event for the insurance industry worldwide and also for Hannover Re was Hailstorm Andreas with a net cost of €99.3 million. The floods in Germany and other European countries also left their mark to the tune of €92.5 million.
“This performance was driven by a very good underwriting result in non-life reinsurance, which improved again on the previous year by €63 million. Group net income additionally benefited from a positive tax effect,” said Wallin.
Hannover Re also continued what has been a steady growth trajectory since 2009. It generated growth of 1.4 percent overall, this partly being driven an increase in its gross written premiums to €14 billion compared with €13.8 billion in 2012. It said that its currency-adjusted growth stood at 4.2 percent.
It admitted that competition in non-life reinsurance intensified markedly in 2013, prompting sizeable rate reductions in some areas. It said it responded by maintaining a highly disciplined focus on business that satisfied its margin requirements.
Its life and health reinsurance business grew slightly with its gross premium increasing by a modest 1.4 percent to €6.1 billion. It said the overall performance of this unit did not live up to expectations, however, chiefly because of a substantial strengthening of its reserves for Australian disability business. The business in question involves individual disability covers in respect of which the risk experience has deteriorated considerably industry-wide.
Looking forward to 2014, Wallin said he remained positive that Hannover Re would maintain consistent results despite many challenges.
“In view of the prolonged period of low interest rates and increasing competition, especially in non-life reinsurance, the general environment remains challenging," Wallin said. "Thanks to our low cost of capital and administrative expenses, we nevertheless enjoy a tangible competitive advantage that will enable us to generate consistent results even in a softening market."
For the 2014 financial year Hannover Re anticipates – based on constant exchange rates – stable to slightly higher gross premium income. In non-life reinsurance the company said it is looking to book a broadly stable volume in view of its selective, profit-oriented underwriting policy; in life and health reinsurance an increase in the low to mid-single digit percentage range is expected.