Profits up but GWP down for Hannover Re

Hannover Re enjoyed growth in its net profits of almost 5 percent in the first half of 2014 and almost 10 percent in the second quarter alone. But the company’s gross written premiums shrank slightly on the back of intense competition in the reinsurance industry and clients retaining more business.

The company made a net profit of €444.4 million in the first half of the year compared with €423.5 million in the same period in 2013. It said it is on track to reach its profit target of around €850 million for the full year.

Its combined ratio for the period was virtually stable at 95 percent compared with 94.4 percent a year earlier. Its return on equity was 14.5 percent.

Its gross written premiums contracted by 2.2 percent to €7.1 billion but the company said it is within its target corridor of generating stable to slightly higher gross premiums for the full year.

“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," said Ulrich Wallin, its chief executive.

“We were also able to substantially boost profitability in life and health reinsurance, enabling both business groups to make the forecast contributions to our overall performance. What is more, investment income also fully lived up to all our expectations.”

But the company made some interesting comments around conditions in the non-life sector, which partly explain its shrinking book in this area and its view on cycle management.

“Supply substantially exceeds demand in global non-life reinsurance, as a consequence of which competition has continued to intensify sharply in 2014,” the company said. “A key factor here – aside from the absence of market-changing large losses – is that healthy levels of capitalisation are enabling many clients to retain more risks for their own account.

“Furthermore, the increased capacities from the market for insurance-linked securities (ILS), especially in the area of US natural catastrophe covers, are leading to appreciable price erosion. This state of affairs was also reflected in the treaty renewals as at 1 April 2014, resulting in a modest premium decline for Hannover Re.”

Its total gross premiums for non-life reinsurance contracted by 0.5 percent as at 30 June 2014 relative to the comparable period to stand at €4.1 billion. This was due in particular to the writing of a new high-volume reinsurance treaty from China as well as successful expansion of activities in Southeast Asia. The operating profit (EBIT) for non-life reinsurance was €521.0 compared with €549.1 million a year earlier.